Oil Prices See A Rebound As Investors Anticipate A Debt Ceiling Agreement

Oil prices regained some ground on Friday after dropping more than 1% the previous day, thanks to a growing optimism that the risk of a U.S. debt default is receding.

Brent futures saw a 0.9% uptick, settling at $76.53 a barrel, whereas West Texas Intermediate U.S. crude rose 0.7% to $72.36.

IG market strategist, Yeap Jun Rong, indicated that the oil market is factoring in the declining threat of a U.S. debt default, telling Reuters that traders are now fostering a more risk-on environment.

Earlier this week, President Joe Biden and House Speaker Kevin McCarthy reassured markets of their commitment to reach an agreement to boost the $31.4 trillion federal debt ceiling.

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Investors were hesitant to remain short going into the weekend, according to Vandana Hari, founder of Vanda Insights, telling Reuters that they fear a potential debt ceiling agreement could be reached, which would likely trigger a bullish market next week.

Yet, market sentiment remains varied. Investors are balancing optimism about averting a U.S. debt default with the potential implications of inflation data that could lead to further interest rate hikes by global central banks.

According to CME Group's Fed Watch tool, the chances of a rate hike at the Fed's June meeting currently stands at 33.4%.

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Photo: Generated using artificial intelligence with MidJourney.