Here's What's Happening To Oil As Debt Ceiling Crisis Drags On

Oil is on track to register first weekly gains in over a month as market participants remain optimistic Congress will find a resolution to the impending debt limit impasse.

West Texas Intermediate futures maturing in July are trading higher by close to 1% at $72.62 per barrel during Friday afternoon Asian trading session. Brent futures expiring in July registered similar gains to trade at $76.58 per barrel.

President Joe Biden has reportedly urged his negotiators to keep following a debt-limit deal after House Speaker Kevin McCarthy indicated both parties may reach an agreement as soon as this weekend. Crude purchased by some Asian refiners also added to the bullish sentiment, reported Bloomberg.

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The United States Brent Oil Fund BNO closed 1.12% lower on Thursday while the Vanguard Energy Index Fund ETF VDE gained 0.78%, according to Benzinga Pro.

Recession Fears: Yeap Jun Rong, a market strategist for IG Asia Pte. told Bloomberg that oil prices seem to be taking its cue from the broader risk environment. Optimism about debt ceiling talks, the upcoming U.S. summer driving season and the nation's plan to replenish its Strategic Petroleum Reserve (SPR) could lend support to futures, he added.

However, fears of a recession – a major factor driving oil demand — are still prevalent among market participants with contrarian opinions on the Federal Reserve's future policy path doing rounds. For instance, Johanna Chua, chief APAC economist at Citigroup Global Markets, reportedly said inflation is likely to be quite persistent and the Fed may go for two more rate hikes in coming times.

At the same time, JPMorgan Asset Management is of the view that a recession in the U.S. is a virtual certainty and the central bank is likely to cut interest rates by the third quarter as growth fizzles out.

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