Dollar higher as US debt ceiling concerns keep traders nervous

NEW YORK, May 23 (Reuters) – The U.S. dollar hit a two-month high against a basket of currencies on Tuesday as a lack of progress in talks over increasing the U.S. debt limit hurt investors’ appetite for risk-taking.

Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks
on Tuesday with no signs of progress as the deadline to raise the government’s $31.4 trillion borrowing limit or risk default ticked closer.

“I think the dollar saw a modest boost today as stocks have declined, mostly due to the lack of progress on the debt ceiling deal,” said John Doyle, vice president of trading and dealing at Monex USA.

While most market participants expect a deal eventually, the delay in getting it done was keeping traders nervous, Doyle said.

Meanwhile, better-than-expected economic data and hawkish comments from regional Fed presidents including James Bullard and Neel Kashkari brought the possibility of further rate increases, also supporting the greenback.

The dollar index =USD, which measures the U.S. currency against a basket of major peers, reached 103.65, the highest since March 20, and was last at 103.55.

The greenback also rose to 138.91 against the Japanese yen JPY=EBS, the highest since Nov. 30, before falling back to 138.57.

“The focus is slowly going back towards inflation and all this hawkish Fed speak we’ve been getting,” said Edward Moya, senior market analyst at OANDA in New York.

“We’re probably looking at a market that is repositioning itself for a little bit more dollar strength here as these Fed rate cut bets get pushed back a little bit further and higher for longer.”

The more hawkish tilt this week by Fed officials comes after comments by Fed Chair Jerome Powell on Friday were viewed as dovish.

Powell said on Friday that it is still unclear if rates will need to rise further, as central bank officials balance uncertainty about the impact of past hikes in borrowing costs and recent bank credit tightening with the fact that inflation is proving hard to control.

Moya noted that minutes from the Fed’s May meeting due on Wednesday will be watched for any further signs of whether the Fed is likely so pause its rate hikes next month.

Traders have ramped up bets that the Fed funds rate will stay elevated, with markets pricing in almost a 30% chance of a rate hike in June and the Fed funds rate seen at about 4.75% in December.

Data on Tuesday showed that sales of new U.S. single-family homes
jumped to a 13-month high in April
. S&P Global’s flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, also climbed to a reading of 54.5 this month. That was the highest level since April 2022 and followed a final reading of 53.4 in April.

(Additional reporting by Samuel Indyk in London; Editing by Alison Williams and Andrea Ricci)

Benchmark 10-year yields ease as debt ceiling talks continue

NEW YORK, May 23 (Reuters) – Benchmark 10-year U.S. Treasury yields edged down from two-month highs reached earlier on Tuesday as traders focused on when Congress will reach an agreement to raise the debt limit and after the Treasury Department saw strong demand for an auction of two-year notes.

Yields on one-month bills, meanwhile, which are being shunned on concerns about payments coming due when the Treasury is most at risk of running out of money, eased from a record high.

Optimism that U.S. lawmakers are nearing a deal to raise the debt ceiling helped send longer-dated yields higher earlier on Tuesday, but they fell back as it appeared that the negotiating parties still face large differences.

Representatives of President Joe Biden and congressional Republicans ended another round of debt ceiling talks with no signs of progress as the deadline to raise the government’s $31.4 trillion borrowing limit ticked closer.

Investors are focused on “the prospect that somehow the Treasury and Congress and the White House reach the X date without a resolution,” said Thierry Wizman, Macquarie’s global FX & rates strategist in New York.

Benchmark 10-year yields US10YT=RR were last down two basis points on the day at 3.696%, after earlier reaching 3.761%, the highest since March 13.

Yields on U.S. one-month Treasury bills eased to 5.594%, after earlier reaching a record high of 5.888%.

Hawkish comments from Fed officials this week helped to send yields higher, in turn leading traders to price in a higher chance of a rate hike in June and reduce their expectations for rate hikes later this year.

Fed funds futures traders are now pricing in a 28% chance of an additional 25 basis points rate increase in June.

The Treasury saw strong demand for a $42 billion sale of two-year notes on Tuesday, which sold at a high yield of 4.30%.

Demand for the debt was 2.90 times the amount on offer, the highest ratio since January.

May 23 Tuesday 2:45PM New York / 1845 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills US3MT=RR	5.175	5.3172	0.039
Six-month bills US6MT=RR	5.135	5.3605	-0.027
Two-year note US2YT=RR	99-41/256	4.3309	0.009
Three-year note US3YT=RR	99-2/256	3.9816	-0.005
Five-year note US5YT=RR	98-232/256	3.7444	-0.023
Seven-year note US7YT=RR	98-176/256	3.7161	-0.027
10-year note US10YT=RR	97-88/256	3.6957	-0.023
20-year bond US20YT=RR	97-32/256	4.087	-0.015
30-year bond US30YT=RR	94-80/256	3.9504	-0.021

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
U.S. 2-year dollar swap spread	17.25	-0.25
U.S. 3-year dollar swap spread	14.25	0.50
U.S. 5-year dollar swap spread	7.25	0.75
U.S. 10-year dollar swap spread	1.50	0.75
U.S. 30-year dollar swap spread	-41.50	0.25

(Reporting by Karen Brettell; Additional reporting by Gertrude Chavez-Dreyfuss and Herb Lash in New York and Stefano Rebaudo in London; Editing by Marguerita Choy, Kirsten Donovan and Andrea Ricci)

S&P 500 seen dipping between now and year-end

NEW YORK, May 23 (Reuters) – The S&P 500 index of U.S. shares will slip marginally between now and year-end as past interest rate hikes, troubled regional banks, and weak earnings weigh on sentiment, according to strategists in a Reuters poll.

They see the benchmark index ending the year at 4,150, down slightly from Monday’s close of 4,192.63, but still up about 8% from the end of 2022, based on the median forecast of 43 strategists polled by Reuters during the last two weeks.

Given the myriad risks to the market, including a possible U.S. debt default, 12 of 15 strategists who answered a question about the outlook for stocks said trading will be range bound in the coming three months.

“It’s just a very uninspiring, low-growth backdrop, with tight monetary policy and earnings that will be down this year versus last,” said Jonathan Golub, head of U.S. equity strategy and quantitative research for Credit Suisse, whose year-end target for the S&P 500 this year is 4,050.

The S&P 500 is up about 9% so far in 2023 after falling 19.4% in 2022.

Gains this year are largely thanks to big growth and technology stocks, which have rallied as other areas of the market have faltered, like regional banks.

The S&P 500 communication services sector is up 32% for the year to date, while technology is up about 28%.

But the recent collapse of Silicon Valley Bank and a few other regional banks has led to concerns banking instability will hurt U.S. companies that rely on loans from these smaller banks.

Investors are weighing the likelihood that the Federal Reserve’s aggressive approach to raising interest rates will push the economy into recession.

Golub said while he does not see a recession ahead, he expects companies to face margin pressure from higher wages, which could result in layoffs.

The latest poll forecast for the S&P 500 is down slightly from the 4,200 year-end 2023 target in a February Reuters stocks poll.

To be sure, some strategists are adjusting their targets upward. Savita Subramanian, equity and quant strategist at BofA Securities, this week raised her S&P 500 year-end forecast to 4,300 from 4,000.

S&P 500 companies are still expected to have had a second straight decline in quarterly earnings in the first quarter, or a U.S. “earnings recession,” which last occurred when COVID-19 hit corporate results in 2020, based on Refinitiv data.

Analysts are forecasting full-year profit growth for 2023 of just 1.2%.

At the same time, the S&P 500’s forward 12-month price-to-earnings ratio is now at 19 compared with 17 at the end of 2022 and a long-term average of about 16, according to Refinitiv data.

“Historically, when you’ve seen this level of valuation, it’s normally associated with re-acceleration in earnings and also an outlook for double-digit earnings growth going forward. We don’t see that happening,” said Nadia Lovell, senior U.S. equity strategist at UBS Global Wealth Management, which has a 3,800 year-end S&P 500 target.

Based on the poll, the Dow Jones industrial average will finish the year at 34,230, up 2.8% from Monday’s close.

In 2024, the S&P 500 will end at 4,500.

(Reporting by Caroline Valetkevitch; additional reporting by Sinead Carew, Chuck Mikolajczak, Stephen Culp, and Alden Bentley in New York and Noel Randewich in San Francisco; Additional polling by Milounee Purohit, Susobhan Sarkar, and Anitta Sunil; Editing by Bernadette Baum)

Gold recovers as debt-ceiling talks make little progress

May 23 (Reuters) – Gold prices rebounded from their earlier losses on Tuesday, as yields fell and the dollar retreated from its highs, while another round of U.S. debt ceiling talks ended without much progress.

Spot gold XAU= was up 0.3% at $1,975.39 per ounce by 2:15 p.m. EDT (1815 GMT), after shedding as much as 0.8% earlier.

U.S. gold futures GCv1 settled 0.1% lower at $1,974.50.

Gold rose from session lows on reports of further negotiations over raising the debt ceiling, said Daniel Pavilonis, senior market strategist at RJO Futures.

Representatives of President Joe Biden and congressional Republicans ended another round of debt-ceiling talks with no signs of progress as the deadline to raise the government’s borrowing limit or risk default ticked closer.

Wall Street’s main indexes fell and the dollar index backed off from its session high, while benchmark 10-year yields fell from a two-month peak. .N USD/ US/

“The inverse correlation between yields and gold is still there,” Pavilonis said.

Bullion has lost nearly $100 an ounce from its near-record peak hit earlier this month, mainly pressured by growing bets on interest rates staying higher for longer.

“For now the market has not entirely ruled out another rate hike, and that’s clearly not what (it) was looking (like) just a month ago and that’s leading to this realignment of prices,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Minneapolis Fed President Neel Kashkari said on Tuesday U.S. rates may have to go “north of 6%”.

Gold tends to lose appeal when rates rise and push up bond yields, increasing the opportunity cost of holding zero-yield bullion.

Investors now await the minutes from the Federal Open Market Committee’s May 2-3 meeting on Wednesday.

Silver XAG= fell 0.7% to $23.51 per ounce, platinum XPT= was down 1.4% at $1,052.42 and palladium XPD= lost 2.7% at $1,450.14.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; editing by Susan Fenton, Jason Neely, Vinay Dwivedi and Shilpi Majumdar)

US debt ceiling crunch threatens to roil complacent stock market

NEW YORK, May 23 (Reuters) – Strategists at some of Wall Street’s biggest banks are sounding increasingly worried about potential market fallout from the standoff over raising the U.S. debt ceiling, even as stocks continue grinding higher.

The S&P 500 is up more than 9% this year and stands around its highest point since August 2022. For now, equity investors seem unflustered as the deadline to avoid a catastrophic first-ever U.S. government default draws nearer, in part because most are confident lawmakers will eventually reach a deal.

But with equities trading at valuations that are expensive relative to history and the Federal Reserve’s policy rate at a 15-year high, some strategists are warning that stocks could become rocky in the days leading up to the so-called X-date of June 1, which the Treasury Department has said is the day the federal government could run out of money to pay its bills.

“Coming into this week, the market looks more vulnerable to volatility around the debt ceiling,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “It’s something that certainly could be repriced into markets if a snag does hit over the course of the next week or so.”

President Joe Biden and House Speaker Kevin McCarthy ended discussions late Monday with no agreement on how to raise the U.S. government’s $31.4 trillion debt ceiling and will keep talking with less than two weeks before a possible default.

CALM FOR NOW

Though worries have swirled in bond markets, stocks have been comparatively calm and the Cboe Volatility Index, known as Wall Street’s fear gauge, stands near its lowest levels since late 2021.

For now, investors believe an agreement is likely, even as the deadline approaches. A survey of global fund managers from BofA Global Research last week showed that 71% believe a deal to raise the debt ceiling will be reached before the X-date.

Yet some worry the current market and economic backdrop may leave stocks more vulnerable than in 2011, when a debt-ceiling related standoff led to a historic downgrade of the U.S. credit rating.

While stocks plunged almost 20% during the 2011 episode, higher inflation, richer valuations, and tighter monetary policy could mean the current market environment might be worse for risky assets now, according to strategists at JPMorgan.

Indeed, the S&P 500 is trading at about 18.4 times forward earnings estimates, compared with its historic average of 15.6 times, according to Refinitiv Datastream. That measure stood at just over 12 times in the summer of 2011, according to JPMorgan.

Other benchmarks are also less favorable: The Fed’s most aggressive rate hiking cycle in decades has left interest rates in a range of 5% to 5.25%, compared with near zero in 2011. Inflation stands at 4.9% annually, compared with 3.6% in 2011, while S&P 500 forward annual earnings are estimated to rise 5.7% versus 15.3% that year, the bank’s report showed.

The bank’s analysts also pointed out that, as in 2011, even a close call could be enough to roil markets.

While they ultimately expect a resolution, “the journey to that end could … drive significantly higher market instability than appreciated by the market currently,” JPMorgan wrote.

UBS Global Wealth Management, meanwhile, wrote last week it expects the S&P 500 to fall by more than 10% if lawmakers fail to reach an agreement before the X-date, though that is not its base case.

“Historically, equity volatility does not show signs of stress until the X-date approaches,” the firm said in a separate note last week. “If the market does not place a high probability on a resolution by early next week we would anticipate equity volatility to move higher alongside T-Bill yields and credit default swaps.”

Despite the relative calm in the VIX, there have been some large options trades recently that would pay out if the fear gauge jumped to record highs over the next few months – indicating worries over a steep market decline, said Henry Schwartz, global head of client engagement, data & access solutions at Cboe Global Markets.

“It almost points to a binary view … either they settle it (the debt ceiling issue) and the VIX stays at 17 or we actually default and the VIX goes to 90,” Schwartz said.

(Reporting by Lewis Krauskopf; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Sam Holmes)

Oil rises as US gasoline supplies tighten, Saudi says: ‘watch out’

BENGALURU, May 23 (Reuters) – Oil prices rose on Tuesday on forecasts for a tighter gasoline market and a warning from the Saudi energy minister to speculators that raised the prospect of further OPEC+ output cuts.

Brent crude futures LCOc1 rose 85 cents, or 1.1%, to settle at $76.84 a barrel, while the U.S. West Texas Intermediate crude (WTI) CLc1 ended at $72.91 a barrel, up 86 cents, or 1.2%.

Both benchmarks extended gains to about 2% in post-settlement trade, after figures from the American Petroleum Institute (API) showed a large draw in crude and gasoline last week, according to market sources. API/S

If official inventories data from the Energy Information Administration, due on Wednesday, confirm the industry body’s figures, U.S. gasoline inventories would have declined for the third straight week to their lowest pre-Memorial Day levels since 2014.

The Memorial day holiday, this year on May 29, traditionally marks the beginning of U.S. peak summer travel. U.S. gasoline futures <RBc1> rose 2% on Tuesday after the API data.

Production cuts by some OPEC+ members take effect this month. Fears of a supply squeeze mounted after Saudi Arabia’s energy minister said he would keep short sellers – those betting that prices will fall – “ouching” and told them to “watch out”.

The comments could mean the Organization of Petroleum Exporting Countries and allies including Russia will consider further output cuts at a meeting on June 4, said OANDA analyst Craig Erlam.

Erlam added Brent crude prices need to rise above $77.50 a barrel to signal a sentiment shift.

“Of course, actions speak louder than words and traders haven’t been overly deterred by his words, despite the group having announced two sizeable cuts in the last year that briefly shook the markets,” Erlam said.

Some felt oil’s upside was limited by U.S. debt ceiling jitters. Another round of debt ceiling talks ended on Tuesday with no signs of progress as the deadline to raise the government’s $31.4 trillion borrowing limit or risk default ticked closer.

“(Oil) prices are likely to remain within their broad year to date trading range as the economy continues to slow while the refill of the Strategic Petroleum Reserve and OPEC manages prices relative to global demand needs,” said Rob Haworth,, senior investment strategist at U.S. Bank Wealth Management.

(Additional reporting by Alex Lawler, Yuka Obayashi in Tokyo and Andrew Hayley in Beijing; Editing by Marguerita Choy and Emelia Sithole-Matarise)

Gold dips as Fed officials suggest higher-for-longer US rates

May 22 (Reuters) – Gold prices inched lower as hawkish comments from two US Federal Reserve officials on Monday weighed on non-yielding bullion and markets looked for more clarity around US debt ceiling negotiations.

Spot gold was down 0.1% to USD 1,974.90 per ounce by 2:13 p.m. ET (1813 GMT). US gold futures settled 0.2% lower at USD 1,977.10.

President Joe Biden and House Republican Speaker Kevin McCarthy will discuss the debt ceiling on Monday, which will be closely watched to see if a resolution is reached after negotiations broke off on Friday.

While worries over a deal on the debt ceiling not being implemented before June 1 could cause some flight-to-safety buying into gold, the marketplace seems to believe that a financial crisis can be averted, said Jim Wyckoff, senior analyst at Kitco Metals.

Bullion traders were also watching the dollar closely, which was a major element in the lack of buying interest in the gold market recently, Wyckoff said.

Markets await the minutes of the latest US Federal Open Market Committee meeting due on Wednesday. Markets are pricing in a 68.6% chance of rates being held steady next month, yet a 31.4% chance of a 25-basis-point hike, the CME FedWatch tool showed.

Minneapolis Fed President Neel Kashkari told CNBC that “it may be that we have to go north of 6%” to get inflation back to the Fed’s 2% target, while St. Louis Fed President James Bullard said there might be the need to go higher on the policy rate.

Gold tends to lose appeal in a high interest rate environment.

“USD 1,960 remains a key zone of support, a significant break of which could signal a much deeper correction is on the cards,” Craig Erlam, a senior market analyst at OANDA, wrote in a note.

Spot silver fell 0.6% to USD 23.67 per ounce, platinum was up 0.6% to USD 1,068.88 while palladium dipped 1.6% to USD 1,488.87.

(Reporting by Seher Dareen in Bengaluru; Editing by Ed Osmond, Shilpi Majumdar and Cynthia Osterman)

Dollar hobbled by dovish Powell, debt ceiling setback

TOKYO, May 22 (Reuters) – The dollar extended its decline versus the yen and euro on Monday, following a surprise breakdown in US debt ceiling negotiations and after Federal Reserve Chair Jerome Powell indicated a preference to slow rate hikes.

The greenback slipped 0.15% to 137.725 yen to start the week, having snapped a six-day winning streak on Friday, pulling back from a six-month peak.

The euro added 0.14% to USD 1.08205, continuing Friday’s bounce from a seven-week low.

Investors now await a key meeting between US President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling on Monday.

Negotiations between the two sides broke off suddenly on Friday with Republican negotiators walking out of the meeting. Although talks eventually resumed, neither side cited any progress, knocking the dollar lower.

Many currency analysts say brinkmanship is to be expected heading toward the ostensible “X-date” in early June when the Treasury is likely to run out of money.

“Have we not seen this movie before?” National Australia Bank strategist Rodrigo Catril said in a client note, while Westpac strategist Sean Callow called it a “hiccup.”

“The broad outlines of a deal are still in sight,” said Callow.

Instead, the dollar is more likely to be driven by the Fed outlook, and “Powell’s preference for a pause in June should outweigh any hawkish notes from regional Fed presidents, leaving DXY as a sell on rallies,” Callow added, referring to the US dollar index.

Powell told a central bank conference in Washington on Friday that tighter credit conditions mean “our policy rate may not need to rise as much as it would have otherwise to achieve our goals,” although he reiterated that decisions would be made “meeting by meeting.”

Money market traders have pared back bets for a hike on June 14 to just 12%.

The dollar index, which measures the US currency against six major peers, was little changed at 103.07, hovering well back from the high of 103.63 last week, a level last seen on March 20.

Westpac’s Callow projects the index could drop toward 101 in coming days or weeks, “especially given ongoing ECB resolve on inflation.”

European Central Bank President Christine Lagarde said on Friday officials need to “buckle up” for “sustainably high interest rates” in order to achieve its price target.

Elsewhere, sterling gained 0.14% to USD 1.2464, continuing its recovery from last week’s three-week low.

The Aussie was flat at USD 0.6652.

Its New Zealand peer advanced 0.16% to USD 0.62855, with traders ramping up bets to 1-in-3 for a half-point hike by the Reserve Bank on Wednesday.

The Chinese yuan weakened to 7.0359 per dollar in offshore trading, creeping back toward Friday’s six-month low of 7.0750.

The currency has been under pressure on growing signs the country’s post-COVID recovery may already be petering out, but got some respite on Friday after the People’s Bank of China pledged to curb large exchange rate fluctuations.

“Despite these warnings, the PBOC may favor short-term CNY underperformance … to help provide some stimulus,” TD Securities strategist Mitul Kotecha wrote in a note.

“Overall, while markets may now be a little more wary of pushing the CNY lower, we think the CNY will largely track the USD in the short term.”

(Reporting by Kevin Buckland. Editing by Sam Holmes and Shri Navaratnam)

Gold eases on steady dollar, US debt talks lend support

May 22 (Reuters) – Gold prices pulled back on Monday as the dollar steadied, but drawn-out discussions regarding the US debt ceiling and Federal Reserve Chair Jerome Powell’s less-hawkish comments prevented further losses in safe-haven bullion.

Spot gold was down 0.1% at USD 1,975.09 per ounce as of 0717 GMT, while US gold futures fell 0.1% to USD 1,979.60.

The US dollar index was up 0.2%, making gold less affordable for overseas buyers.

US President Joe Biden and House Republican Speaker Kevin McCarthy will meet to discuss the debt ceiling on Monday, which will be closely watched to see if a resolution is reached after negotiations broke off on Friday.

“Gold is taking more of a cue from debt ceiling developments (or lack of) over the Fed meeting because a US default could occur before the Fed next meet, and it would surely have an impact on the Fed’s decision,” said Matt Simpson, a senior market analyst at City Index.

Gold prices gained 1% on Friday after Fed Chair Powell said it is still unclear if US interest rates will need to rise further, amid uncertainty about the impact of past hikes and recent bank credit tightening with the fact that inflation is proving hard to control.

Non-interest-bearing bullion becomes less attractive in a high interest rate environment.

Markets are now pricing in a 87.3% chance of the Fed standing pat on rates next month, the CME FedWatch tool showed.

Gold might break a resistance at USD 1,985 and climb into a USD 1,992-USD 2,003 range before turning around and falling, according to Reuters technical analyst Wang Tao.

Meanwhile, Asian stocks rose on a rally in regional chip shares on Monday.

Spot silver slipped 0.4% to USD 23.74 per ounce, platinum rose 0.1% to USD 1,064.00 and palladium fell 0.5% to USD 1,504.88.

(Reporting by Kavya Guduru in Bengaluru; editing by Varun H K and Jason Neely)

Oil down 1%, US debt caution offsets supply worries

May 22 (Reuters) – Oil prices slipped on Monday as caution around US debt ceiling talks and concerns about demand recovery in China offset support from lower supplies from Canada and OPEC+ producers.

Brent crude futures LCOc1 fell 73 cents, or 0.97%, to USD 74.85 a barrel by 0634 GMT, while US West Texas Intermediate (WTI) crude CLc2 for July delivery, the more actively traded contract, slipped 73 cents, or 1.02%, to USD 70.96.

The June WTI contract CLc1, which expires later on Monday, fell 87 cents to USD 70.68 a barrel.

“I expect plenty of volatility in the coming days and a bounce upward in crude prices as and when a deal is reached to raise the debt ceiling,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.

“But crude’s headroom thereafter will be limited as other economic headwinds return to the center stage,” she added.

Weak economic data reports from China in recent weeks have sparked concerns about demand in the world’s top crude importer and No. 2 oil consumer, analysts said.

Last week, both oil benchmarks gained about 2%, their first weekly gain in five, after wildfires shut in large amounts of crude supply in Alberta, Canada.

The impact of voluntary production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, known as OPEC+, is also being felt after going into effect this month, analysts from Goldman Sachs and JP Morgan said.

Total exports of crude and oil products from the group plunged by 1.7 million barrels per day (bpd) by May 16, JP Morgan said, adding that Russian oil exports will likely fall by late May.

On Saturday, the Group of Seven (G7) nations pledged at its annual leaders’ meeting to enhance efforts to counter Russia’s evasion of the price caps on its oil and fuel exports “while avoiding spillover effects and maintaining global energy supply” but did not provide details.

Such enhancements are not expected to change the supply situation for crude and oil products, the International Energy Agency’s (IEA) Executive Director Fatih Birol said, adding that the agency was sticking to its analysis for now.

In its latest monthly report, the IEA warned of a looming shortage in the second half when demand is expected to eclipse supply by almost 2 million bpd.

“It remains to be seen if the new curbs will impact Russian oil production as the Russians have been very effective in finding ways around European and US sanctions and the sanctions have proved difficult to enforce,” IG’s Sydney-based analyst Tony Sycamore said.

The US oil rig count fell by 11 to 575 in the week to May 19, the biggest weekly drop since September 2021, energy services firm Baker Hughes Co (BKR) said.

“A slowdown in US drilling activity is a concern for the oil market, which is expected to see a sizeable deficit over the second half of this year,” ING said.

(Reporting by Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Himani Sarkar and Christian Schmollinger)

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