Oil slips as economic turmoil outweighs US debt deal

May 29 (Reuters) – Oil prices fell on Monday as economic worries over further rate hikes trumped a tentative debt ceiling deal reached in the United States, possibly averting a default in the world’s biggest economy and oil consumer.

Brent crude futures were down 68 cents, or 0.8%, at $76.27 a barrel by 1[ads1]350 GMT, while US West Texas Intermediate crude was at $72.11 a barrel, down 56 cents, or 0.7% .

Trading is expected to be muted on Monday due to UK and US public holidays.

US President Joe Biden and House Speaker Kevin McCarthy reached an agreement over the weekend to suspend the $31.4 trillion debt ceiling and cap government spending for the next two years. Both leaders expressed confidence that members of the Democratic and Republican parties will vote to support the deal.

Still, analysts saw any boost in oil prices from the debt deal as short-lived, with earlier gains in the session now lost.

The US central bank could still raise interest rates in June, IG’s Sydney-based analyst Tony Sycamore said. “Higher US interest rates are a headwind for crude oil demand,” he added.

Markets are leaning towards expecting the Fed to raise interest rates by 25 basis points next month, then hold rates steady for the rest of the year.

Chinese stocks fell after data showed profits fell at China’s industrial companies.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known as OPEC+, are due to meet on June 4.

Saudi Energy Minister Abdulaziz bin Salman warned short sellers who are betting oil prices will fall to “watch out”, in a possible signal that OPEC+ could further cut output.

However, comments from Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, indicate that the world’s third largest oil producer is leaning against leaving output unchanged.

“Traders have become a bit confused as to what we can expect,” said Craig Erlam, senior market analyst at OANDA.

“It could be that Saudi Arabia wants to keep traders on their toes, but making these comments and not following through could be seen as weak and see prices fall again,” Erlam said.

Additional reporting by Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Kirsten Donovan and David Holmes

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