Oil steadies as U.S. debt ceiling deal talks stall

Oil prices were steady on Monday after the U.S. leaders reached a tentative debt ceiling deal, possibly averting a default in the world's largest economy and oil consumer, but worries about further interest rate hikes capped gains.

Brent crude futures climbed 14 cents, or 0.2 percent, to $77.09 a barrel, while U.S. West Texas Intermediate crude was at $72.88 a barrel, up 21 cents, or 0.3 percent.

Trade will be subdued on Monday because of the UK and U.S. holidays.

Over the weekend, President Joe Biden and House speaker Kevin McCarthy forged an agreement to suspended the $31.4 trillion debt ceiling and cap government spending for the next two years. Democrats and Republicans said they were confident that members of the Democratic and Republican parties would vote to support the deal.

By reaching the agreement and getting closer to avoiding a default on U.S. debt, investors have revived their interest in riskier assets like commodities.

Analysts said the deal has taken pressure off the markets, offering a relief rally in risk assets, including crude oil.

We could see more gains as a relief rally gets under way in the broader financial markets when the U.S. comes back from the long Memorial Day weekend, Hari said.

Analysts see any boost in oil prices from the debt deal as short-lived.

The U.S. Federal Reserve could still raise interest rates in June, IG's Sydney-based analyst Tony Sycamore said.

OPEC and its allies, including Russia, are due to meet on June 4 in Pyongyang.

Saudi energy minister Abdulaziz bin Salman warned short-sellers that oil prices will fall to watch out in a possible signal that OPEC may further cut output.

Russian oil officials and sources, including Deputy Prime Minister Alexander Novak, suggest the world's third-largest oil producer is leaning towards leaving output unchanged.