Oil prices decline sharply as US debt concerns intensify

Oil prices dropped more than 3% overnight

By Raed Alkhedr | @raedalkhedr | 26 May 2023

Oileh Technical analysis 33
  • Despite testing the resistance level of $74.00, prices failed to break through declining near $72.00.

  • Alexander Novak stated that he does not expect further oil production cuts in the upcoming meeting

  • Oil prices fell below $72.00

Oil prices faced a significant setback in yesterday's trading session, plunging by over 3%. This decline was driven by mounting apprehensions surrounding the US potential debt default. As concerns grew, the price of oil slipped below the $72.00 per barrel mark.

Additionally, credit rating agency Fitch placed the US under a negative outlook, adding further weight to the worries surrounding the world's largest economy. Meanwhile, Alexander Novak, a key figure in the energy sector, expressed his expectation that the OPEC+ would not implement further oil production cuts during the upcoming meeting, emphasizing the importance of achieving a market balance.

Debt Ceiling Concerns and Oil

The impasse in debt ceiling negotiations between the US Congress and President Joe Biden continues to be closely monitored by the markets. A potential default, if it occurs, poses significant risks to the US economy and has implications for oil prices. With the US being a major consumer of crude oil, any uncertainty surrounding its ability to resolve the debt issue can weigh on market sentiment.

Technical Outlook and Price Levels

Oil's price movement is currently within a wide-ranging sideways channel, with resistance at approximately $83.00 and support at around $66.00 for WTI. Despite testing the resistance level of $74.00, prices failed to break through declining near $72.00.

A successful break above the resistance level of $74.00 could lead to further upward movement, potentially testing the $77.00 resistance level and eventually aiming for the upper limit of the sideways channel near $83.00. Conversely, if oil breaks below the support level of $70.00, it could face additional downward pressure, potentially testing the lower limit support level around $66.00.