Oil prices rose in early Asian trade on Monday after US leaders reached a tentative agreement on the government's debt ceiling, which could prevent a catastrophic default in the world's largest economy and largest oil consumer.
On Saturday, US President Joe Biden and House Speaker Kevin McCarthy reached an agreement in principle to suspend the government's debt ceiling of $31.4 trillion. Both expressed confidence on Sunday that the Democratic and Republican members of the House and Senate would support the agreement.
CMC Markets analyst Tina Teng said the initial US debt deal provided a rebound in risky assets, including crude oil, noting that China's bumpy economic recovery is weighing on oil markets.
But the markets may only breathe a sigh of relief for a while because once the deal is approved, the US Treasury is expected to issue bonds that further tighten liquidity and raise the cost of funding for companies already struggling due to higher interest rates.
For his part, IG analyst Tony Sycamore sees the sustainability of higher oil prices as questionable as there is a greater chance that the US Federal Reserve will raise interest rates in June after their preferred measure of inflation rose more than expected for the month of April.
He added that high US interest rates are a headwind to the demand for crude oil.
And some investors remain cautious in light of indications that the OPEC + group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, may consider implementing additional production cuts at its meeting to be held on the fourth of June.
Investors are also looking forward to data on the manufacturing and services sectors in China this week, as well as data on non-farm payrolls in the United States, on Friday, in search of indicators of economic growth and demand for oil.
It is noteworthy that the growth of oil production in America, the largest producer in the world, may slow, with US energy companies reducing drilling rigs for the fourth week. The energy services company, Baker Hughes, announced in its latest weekly report, Friday, that the number of operating oil rigs decreased by Five rigs to 570 rigs last week, the lowest level since May 2022.
By 0331 GMT, Brent crude futures rose 61 cents, or 0.8 percent, to $77.56 a barrel, and West Texas Intermediate crude futures rose 68 cents, or 0.9 percent, to $73.34 a barrel, according to Reuters data.
Last week, Brent and West Texas Intermediate rose by more than 1 percent for the second week in a row.