LONDON: Oil rose on Tuesday supported by optimism the U.S. would avoid a debt default, a tighter market outlook and a warning from the Saudi energy minister to speculators that raised the prospect of further OPEC+ cuts to support the market.
The gains added to a rally on Monday, when crude gained a tailwind from a 2.8% increase in U.S. gasoline futures ahead of the Memorial Day holiday on May 29 which traditionally marks the start of the peak summer demand season.
On the U.S. debt ceiling, White House and congressional Republican negotiators will meet again on Tuesday to resolve a impasse over raising the $31.4 trillion debt limit, with the nation facing the risk of default in as little as nine days.
Oil steady as US default risk offsets demand outlook
Brent crude was up $1.00, or 1.3%, at $76.99 a barrel by 1350 GMT while U.S. West Texas Intermediate (WTI) crude gained 63 cents, or 0.9%, to $72.68.
“The rally is the combination of tentative hopes of resolving the debt ceiling conundrum and the comments from the Saudi energy minister,” Tamas Varga of oil broker PVM told Reuters.
“The market will now see an increased chance of further production cuts at the next OPEC+ meeting, whether justified or not.”
Several members of the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, in May began voluntary production cuts which as well as higher U.S. gasoline demand are also expected to tighten supply.
OPEC+ meets again on June 4, and Saudi Arabia’s energy minister said on Tuesday he would keep short sellers – those betting that prices will fall - “ouching” and told them to “watch out”.
“With the Saudi energy minister once again telling speculators to ‘watch out’ some (short sellers) may have second thoughts,” Ole Hansen, head of commodity strategy at Saxo Bank, said in emailed comments to Reuters.
Also coming onto the radar is the latest U.S. inventory data, which analysts expect to show a small rise in crude stocks. The first of the week’s two reports, from the American Petroleum Institute, is out at 2030 GMT.