Crude oil (CL) futures
Fundamental Analysis

Oil Prices Soar on Optimistic Outlook for US Debt Ceiling Talks

  • Optimism surrounding a potential debt ceiling agreement lifted oil prices.
  • Crude oil inventories rose by 5 million barrels in the week ended May 12.
  • China’s industrial output and retail sales growth were lower than expected in April.

Oil prices rose by approximately $2 on Wednesday due to positive expectations regarding oil demand and ongoing negotiations regarding the US debt ceiling. Despite concerns about an oversupply, the optimism surrounding a potential debt ceiling agreement lifted various asset classes, including oil. 

Jim Ritterbusch, the president of Ritterbusch and Associates, stated that the anticipation of a US debt ceiling agreement by the end of the week largely drove the strong performance in the oil market. 

President Joe Biden and top US congressional Republican Kevin McCarthy were determined to quickly reach a deal. They aim to avoid a potentially disastrous default caused by the federal government’s $31.4 trillion debt ceiling. 

Following a lengthy standoff, the Democratic president and the speaker of the House of Representatives agreed on Tuesday to engage in direct negotiations. It is crucial to reach an agreement that both chambers of Congress can approve before June 1 to prevent the federal government from running out of funds to cover its expenses.

US crude oil inventories (Source:
US crude oil inventories (Source:

Optimism prevailed despite the Energy Information Administration reporting a crude inventory increase of 5 million barrels in the week ended May 12. This increase was unexpected, as analysts polled by Reuters had predicted a 900,000 barrel decrease. 

However, the data did raise concerns about US growth, with retail sales in April rising only 0.4%, falling short of the estimated increase of 0.8%. On the other hand, gasoline stocks decreased by 1.4 million barrels, and the four-week gasoline product supplied, a demand indicator, reached its highest level since December 2021. 

On Tuesday, the International Energy Agency predicted that demand would exceed supply by 2 million barrels per day in the year’s second half. China would account for 60% of the oil demand growth in 2023.

In China, the April industrial output and retail sales growth were lower than expected, indicating a decrease in momentum at the beginning of the second quarter for the economy.

The release of several Chinese macro-economic data for April on Tuesday further confirmed the narrative of a sluggish recovery in the country. This ongoing situation continues to negatively impact the sentiment in the oil market.