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

Brent crude futures fell 48 cents, or 0.6%, to $75.10 a barrel by 0201 GMT while US West Texas Intermediate (WTI) crude for July delivery, the more actively traded contract, fell 45 cents, or 0.6%, to $71.24.

The June WTI contract, which expires later on Monday, fell 52 cents to $71.03 a barrel.

The resumption of US debt ceiling negotiations later on Monday will remain a key driver for crude and risk sentiment this week, IG’s Sydney-based analyst Tony Sycamore said. The US is the world’s biggest oil consumer.

Investors were also concerned that China’s recovery is faltering after weak economic data reports in the past two weeks, he added.

“If the housing market continues to fall and policymakers fail to respond, the risk of a double-dip China slowdown increases, which spells bad news for crude oil consumption and demand,” Sycamore said. China is the world’s top crude importer and No. 2 oil consumer.

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,” 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 said.

“A slowdown in U.S. 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.