Oil futures: Crude slumps 4.5% on US debt woes, OPEC+ uncertainty

30 May 2023

Quantum Commodity Intelligence – Crude oil futures Tuesday were sharply lower amid uncertainty on Congress waving through a debt ceiling deal, while a potential schism in the OPEC+ alliance also weighed.

Aug23 ICE Brent futures were trading at $73.62/b (1805 GMT), compared to the day's range of $73.32-$77.59/b and Monday's settle of $77.10/b, while Jul23 was at $73.52/b heading towards expiry.

At the same time, Jul23 NYMEX WTI was trading $69.39/b, versus Tuesday's close of $72.67/b, as crude benchmarks tested lows not seen since early May.

While Democrats and Republicans had agreed to a compromise deal on raising the $31.4 trillion debt ceiling, a split has emerged on the Republican side.

Florida Governor and presidential-race candidate, Ron DeSantis, told Fox News the US is still "careening toward bankruptcy" despite a debt-ceiling deal struck in principle over the weekend.

Analysts said the deal struck between President Joe Biden and House Speaker Kevin McCarthy could now face a rocky path through Congress, with the US set to breach its current debt limit in early June.

The deal will be assessed by the House Rules Committee Tuesday and, if approved, will likely go to a vote in the House Wednesday.

"Both Democrat and Republican leaders feel they have the votes to get the deal through Congress – although at times like these, there may be a few holdout politicians," said ING bank.

However, some analysts have said a major revolt by Republicans could put McCarthy's legitimacy as Speaker in jeopardy, which would have major ramifications on progress for an agreement.

Fellow Republican runner Vivek Ramaswamy also said on Twitter, "I'm at NO on the debt ceiling deal", and while former President Trump has been silent far, his former strategist Steve Bannon called on Republicans voting for the deal to be deselected at a state level.


The upcoming OPEC+ meeting also added to the uncertainty, while possible further US and European rate hikes weighed on the sector.

"Oil markets continue to experience highly choppy price action, driven this week by Fed uncertainty, low liquidity and confusing messages from OPEC+ members about new output cuts, which have spread uncertainty in oil markets and left traders doing little more than betting yes or no on a production cut heading into the OPEC meeting," said Stephen Innes, managing partner SPI Asset Management.

Innes also described Russian oil as "the biggest wild card" on the supply side, with Moscow so far failing to fully implement announced cuts.

Chicago Federal Reserve Bank President Austan Goolsbee welcomed news of a tentative deal to revise the debt limit, adding failure to ratify the agreement would be "extremely negative" for the financial system.

Interviewed on CBS, he declined to say whether he would support an interest-rate hike at the Fed meeting on 13-14 June, adding that the full impact of central bank rate increases had yet to be felt.

Debt concerns from China also reemerged around the property sector, as the Evergrande Group said late Monday its debt levels have rocketed to almost 900 billion yuan, or around $127 billion.