Traders Rally Behind Debt Ceiling Resolution, But Demand "Still Murky"

by Ship & Bunker News Team
Thursday June 1, 2023

A successful climax of the U.S. debt ceiling drama inspired oil traders to boost crude benchmarks to their highest level since May on Thursday – as well as eclipsed concerns about an unexpected stock build in that country.

After the House passed a bill to suspend Washington’s debt ceiling and improve chances of averting a default, West Texas Intermediate rose $2.01, or 3 percent, to settle at $70.10 per barrel, the benchmark's biggest daily gain since May 5.

Brent settled up $1.68, or 2.3 percent, to $74.28 per barrel, the biggest daily gain since May 17.

But Stewart Glickman, analyst at CFRA Research, warned that “the overall demand outlook is still murky: the trucking space is doing poorly, for example.”

Meanwhile, the Energy Information Agency reported a U.S. inventory build of 4.5 million barrels for the week to May 26; at 459.7 million barrels, inventories are around 2 percent below the five-year average for this time of the year.

Additionally, the EIA estimated a distillates inventory build of 1 million barrels for the week to May 26 and a production rate of 5 million barrels per day (bpd), compared with a draw of 600,000 barrels for the previous week when production averaged 4.9 million bpd.

As for impending trading influencers, none is more prominent than the upcoming Sunday meeting of the Organization of the Petroleum Exporting Countries (OPEC), even though sources have stated  that the prospect of the cartel expanding output cuts is unlikely.

But the cartel has upset expectations many times before, and indeed one analyst expressing doubts over more output cuts told media, "At this precise time, no change for the meeting but as usual, depending on the mood of some, everything can change."

Peter McNally, analyst at Third Bridge, said, “Third Bridge experts would not rule out more aggressive actions from OPEC+, but the tug-of-war right now in the market is the seasonal versus the cyclical.

“We are watching to see how strong the developed world’s summer demand uptick will be relative to the struggles of China’s cyclical recovery.”