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Crude oil lower; Fed rate hike fears prompt selling -- Oil prices slumped Tuesday as concerns about future economic growth, particularly in the U.S., the largest consumer of crude in the world, overshadowed relief over the signing of a deal to lift the U.S. debt ceiling.

By 09:00 ET (13:00 GMT), U.S. crude futures traded 2.6% lower at $70.78 a barrel, while the Brent contract fell 2.7% to $75.03 a barrel.

U.S. President Joe Biden and Republican House Speaker Kevin McCarthy announced an agreement over the weekend after weeks of fraught negotiations over raising the $31.4 trillion debt ceiling.

The deal would raise the debt ceiling for two years, effectively pushing the normally fraught negotiations beyond the 2024 presidential election, and cap some government expenditures. This effectively ended concerns over the U.S. defaulting on its debt obligations, which would have had grave economic repercussions around the globe.

The deal still has to go through both houses of a deeply divided Congress, but the leadership of both sides seem confident of its progress.

That said, the oil market hasn’t received a boost Tuesday as traders fear that the removal of this economic threat will embolden the Federal Reserve to increase interest rates once more when it next meets in June, curtailing economic activity as it battles inflation.

This has boosted the dollar, which reached a two-month high earlier Tuesday, making crude more expensive for foreign buyers.

Traders are also concerned about the strength of the Chinese recovery, the world’s largest crude importer, ahead of the release of key manufacturing and service sector data for May, due on Wednesday.

These numbers are expected to show whether an economic rebound in the country slowed further during the month, after a string of weak readings for April.

Also of interest will be a meeting of the Organization of Petroleum Exporting Countries and allies over the weekend, following somewhat mixed signals from Saudi Arabia and Russia on more production cuts. The cartel and its allies had unexpectedly cut oil production in April.

“Speculative shorts in ICE Brent fell last week after Saudi’s warning, although speculative shorts in NYMEX WTI increased, giving no clear indication about the market sentiment,” said analysts at ING, in a note.

“The possibility of another production cut from the OPEC+ at its June meeting appears slim for now, but it can’t be ruled out completely.”

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