1. Related to the US debt ceiling issue
On Tuesday, U.S. House of Representatives Speaker McCarthy said a deal had not yet been reached, but believed a deal could still be reached by June 1. The two sides are understood to still have major disagreements over spending, with no talks currently scheduled.
On Tuesday local time, Federal Reserve Chairman Jerome Powell went to Congress to meet with Democratic representatives to discuss economic issues, without mentioning the debt ceiling. Participants said that Powell’s message was that the situation was improving, but there were still concerns about inflation, and he did not indicate how to act in June.
Former U.S. Treasury Secretary Steven Mnuchin said the debt ceiling deal needed to avoid a catastrophic U.S. default is within reach. And the Fed’s rate hike is “basically done,” and one more rate hike is likely.
2. Saudi Energy Minister Abdul Aziz warned investors betting on falling oil prices to be “cautious” at a conference in Qatar. Institutional analysts said he would not be surprised by OPEC+ proposing a new round of production cuts in June.
3. The initial value of Markit manufacturing PM in the United States in May recorded 48.5, a record low in two months, and returned to below the 50 line of prosperity and decline. However, the initial value of Markit services PMI in the United States recorded 55.1 in May, higher than the expected 52.6 and the previous value of 53.6, the highest level in nearly 13 months
4. The director of the General Intelligence Directorate of the Ukrainian Ministry of Defense stated that the counteroffensive will start soon and the most basic weapons reserves required are already in place.
Ole Hansen, Head of Commodity Strategy, Saxo Bank
Crude oil prices are falling most of the time due to more negative information recently. Chief among them was a stronger dollar, as the debate over whether the Federal Reserve continues to raise rates or pause them draws more and more attention. In addition, the U.S. debt crisis, recession risk and lower-than-expected Chinese economic data also kept oil prices low, but crude oil traders’ positions in the five major crude oil and related product futures have fallen to the lowest risk exposure in a decade, which can That said, these potential headwinds are now almost fully priced in.
The strength in oil prices yesterday was likely supported by comments made by Saudi Energy Minister Abdul Abdullah at the Qatar Economic Forum in Doha. He said OPEC+ seeks stability in the oil market through its actions, not targeting a certain price level or range. He also spoke of his dislike for speculators trying to influence oil prices, saying speculators, having been hit by the April 2 production cuts, should have “be careful!”
Abdul’s comments underscore growing unease about the weakness seen over the past month. Some of that was fueled by new shorts, with the latest CFTC open interest data showing that short sellers have made a comeback. Aggregate short positions in WTI and Brent held by fund managers and other reporters hit a near two-year high of 233 million barrels in the week ended May 16, up 111 million barrels over the past five weeks barrels, 40 million barrels higher than the total short position on April 2 before the production cuts.
Brent has traded in a tighter range in recent weeks, currently trading between $74.50 and $77.5, and based on current positioning, the upside potential is on the rise. However, the $80 psychological level needs to be challenged and broken first in order to signal in the market that a bottom has been made. Until then, markets are likely to remain range-bound. So is WTI Crude Oil, which is currently in the $70-$73.90 range.
U.S. oil had a very strong performance yesterday, but it is still in a consolidation zone for some time. Oil prices did not rule out a test of the 50-day moving average, a level that many are watching closely. The market may continue to worry about demand, but the market tends to be range-bound at this time of year, especially considering that oil prices have suffered a sharp sell-off some time ago, so a little breather makes some sense.
The $65 below is an important support level, while the $80 above is an important resistance level, which may be the main trading range this summer. In the short term, pay attention to the breakthrough direction of the WTI crude oil triangle pattern, which will determine its near-term trend.
Cvril Widdershoven, Global Energy Market Observer
The fundamentals of the current oil market are under pressure, and the market sentiment is clearly pessimistic. Ongoing debt-ceiling talks added another element of uncertainty to the oil market after concerns over a U.S. banking crisis had just dissipated.
Mainstream media reports emphasized that the delay and obstruction of the debt ceiling negotiations by the two parties in the United States is putting negative pressure on global oil prices. This has contributed to subdued sentiment among oil market participants and financial institutions, dampening optimism about demand growth in the second half of 2023 and beyond.
The WTI June contract, which was rolled over on Tuesday, reflected market concerns. There are concerns that the U.S. economy could slow due to a possible default, which could translate into lower demand. However, the market may have misunderstood the situation, as a default or a full-blown economic crisis is unlikely to be the end result of the current power play in the US Senate and Congress. Past experience demonstrates that both parties are aware of the risks and consequences involved. But media attention and the parties’ reluctance to bow to pressure in an election year are fueling a dramatic standoff. However, it is widely believed that a new debt ceiling deal will finally be reached and that life will continue as usual. Moreover, no economic downturn is expected as the global economy remains largely positive. The possibility of a recession in Europe is also not out of sight, as European economies show strength and there is a high demand for available labor to even fill vacancies. Outside the OECD, emerging markets such as the Middle East and India continued to perform strongly.
In general, the reality of the oil market may be contrary to sentiment, and there are signs that a bull market is coming. Markets have priced in lower-than-expected Chinese growth data, while a combination of OPEC+ production cuts and a slowdown in Canadian oil output is expected to support crude prices in the coming months. Additionally, strong demand ahead of the summer holiday season is expected to further boost bullish sentiment. Long positions will rebound sharply once hedge funds regain their footing. As long as one big Wall Street player is bullish, the other sheep will follow.
Jameel Ahmad, Financial Markets Analyst
Negotiations on the US debt ceiling is still little progress, which means that the cautious mood of the market will continue. Given the potential risks in the market, oil prices are now in a dilemma. While debt-ceiling talks and the prospect that the U.S. government is unlikely to run out of cash won’t affect demand after all, crude is a risky asset in investors’ portfolios if traders see the June 1 deadline looming. When worried, we can expect crude oil to be one of the first assets to sell off. Under the current cautious sentiment, it may be difficult for WTI crude oil to rise sharply above $72. From a technical standpoint of price action, $70 is seen as a key support for now, but if investors start to worry about events in Washington, this support is unlikely to hold for long.
At the same time, in the macroeconomic context, the market is waiting for the release of data to clarify the future prospects of the global economy as it waits for the effective decline in inflationary pressures to see how much interest rate hikes will affect various economies. This suggests that it is difficult for oil prices to move much higher than current levels.