Oil dips on risk-on sentiment on debt ceiling worries

TOKYO Oil fell on Tuesday, lowering its risk-on sentiment as worries about the viability of the U.S. debt ceiling pact cooled the market's risk-on sentiment and mixed messages from major producers have clouded the supply outlook ahead of their meeting this weekend.

Brent crude futures fell 50 cents, or 0.7 percent, to $76.57 a barrel by 0453 GMT on Tuesday, following a rise by 0.5 per cent earlier on Tuesday.

U.S. West Texas Intermediate WTI crude dipped 35 cents to $72.32 a barrel, down 0.5 per cent from Friday's close. There is no settlement on Monday because of a public holiday in the United States.

Some hard-right Republican lawmakers said on Monday they may oppose a deal that would raise the debt ceiling in the U.S.'s biggest oil user, while Democratic President Joe Biden and Republican House of Representatives Speaker Kevin McCarthy remained optimistic the deal will pass.

Biden and McCarthy have forged an agreement on the debt over the weekend, and it must pass a divided U.S. Congress before June 5, the day the Treasury Department say the nation will not be able to meet its financial obligations, which could disrupt financial markets.

The contradictory statements from Republicans and lawmakers are keeping investors largely invested in the standoff, said Priyanka Sachdeva, a market analyst from Phillip Nova.

The debt has nearly coincided with the June 4 meeting of the Organization of the Petroleum Exporting Countries OPEC and allies including Russia, known as OPEC and the uncertainty over whether they will increase their output cuts amid a recent slump in prices is also weighing on the market.

Investors have shifted their attention to the outcome of the OPEC meeting this weekend, as there have been mixed messages from major oil producers, Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

Last week, Saudi Arabian Energy Minister Abdulaziz bin Salman warned short-sellers that oil prices will fall to watch out, a possible signal that OPEC may cut production.

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

In April, Saudi Arabia and other members of OPEC announced further oil output cuts by 1.2 million barrels per day bpd, bringing the total volume of cuts by OPEC to 3.66 million bpd.

In April's voluntary production cuts hit the market off guard. Investors are extremely cautious, analysts said in a note issued by Haitong Futures.

Chinese manufacturing and service sector data out later this week will also be scrutinized for cues on the fuel demand recovery in the world's top oil importer.