Oil futures: Prices steady as US debt concerns offset SPR buyback

Quantum Commodity Intelligence – Crude oil futures Tuesday were moving sideways as US debt-ceiling talks offset the US DoE plans to start refilling the SPR and the IEA's more upbeat demand forecast.  

Jul23 ICE Brent futures were trading at $75.02/b (1710 GMT), compared to the day's range of $74.50-$75.95/b and Monday's settle of $75.23/b.

At the same time Jun23 NYMEX WTI was trading $71.00/b, versus Monday's close of $71.11/b.

The Department of Energy, following several hints earlier this month, said it will start replenishing the SPR with a 3 million barrels purchase in August, having sold some 180 million barrels last year.

Although only a relatively small volume, it is the first firm commitment which analysts say could put a floor under US prices at around $70/b, a figure previously flagged by US officials.

Prices found limited support after the International Energy Agency said global oil demand will increase by 2.2 million bpd in 2023 to average 102 million bpd, up from its previous growth forecast of 2 million bpd.

Financial markets were also slightly more upbeat on the prospect of Washington reaching agreement on the debt ceiling, after Treasury Secretary Janet Yellen warned last week that failure to hatch an agreement on the debt ceiling would "produce financial chaos.".

In latest comments in an interview with The Wall Street Journal, Yellen said: "I'm hopeful. I think the negotiations are very active. I'm told they have found some areas of agreement."

Chaos

But economist Paul Krugman warned in an interview with Yahoo Finance that the US defaulting on its debt would spark chaos across financial markets, with the warning coming just weeks before a possible debt ceiling deadline is reached in June. 

"There are pretty good reasons to panic if we actually do have a technical default, because US government debt is the foundation on which world financial markets rest," said Krugman.

China also remains a concern as economic data for April broadly missed expectations as the economy continued to show an uneven recovery since Covid restrictions were lifted late last year.

Industrial production for April was up by 5.6% year-on-year, but well below the 10.9% expected by economists surveyed by Reuters.

Meanwhile, tensions in the Middle East were again ratcheted up after Iran seized a third tanker, the 9,300 dwt product tanker Purity, after Iran said it was 'illegally leased to a foreigner'.

Elsewhere, supply disruption concerns rose with the wildfires in Canada threatening its main producing regions in Alberta.