Oil prices rise on hopes US debt ceiling deal

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Oil prices rise on hopes US debt ceiling deal

TOKYO Oil prices rose on Tuesday as the expectations the debt ceiling deal in the world's biggest oil user, the US, will spur more demand but fears of further interest rate rises and that OPEC will leave output quotas unchanged capped gains.

Brent crude futures soared 35 cents, or 0.5 percent, to $77.42 a barrel on Monday, after gaining 12 cents on Monday.

U.S. West Texas Intermediate WTI crude was up 0.7 per cent at $73.20 a barrel, up 0.7 per cent from Friday's close. There was no legal settlement on Monday because of a public holiday in the United States.

While the debt ceiling deal has led to buying in riskier assets like commodities, major oil producers will arrive on June 4 and it is unknown whether they might increase their output cuts amid an overall slump in prices since the middle of April. The possibility of dipping U.S. interest rates will also be higher, potentially affecting economic growth and therefore oil demand.

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

A U.S. debt ceiling deal boosted risk appetite but investors are reluctant to step up buying amid worries over inflation and potential further increases of interest rates, he said.

U.S. President Joe Biden and House of Representatives Speaker Kevin McCarthy forged an agreement over the weekend to suspend the $31.4 billion debt ceiling and cap government spending for the next two years.

Democrats and Republicans expressed confidence that both sides will support the deal. The House Rules Committee of the United States said it will meet Tuesday to discuss the debt ceiling bill, which must pass a divided Congress before June 5.

Investors also are worried about whether the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, known as OPEC, will change their output quotas.

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

Russian oil officials and sources, including shadow Prime Minister Alexander Novak, indicate 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 of up to 1.2 million barrels per day bpd, bringing the total of cuts by OPEC to 3.66 million bpd.