Oil prices drop while markets wait for U.S. inflation data and traders predicted negative U.S. inflation statistics.
Wednesday saw a slight increase in oil prices, a day after prices dropped below $100 per barrel for the first time since April. However, gains were constrained by caution ahead of potential market-weakening US inflation data.
At 0630 GMT, Brent crude futures were up 45 cents, or 0.5%, at USD 99.97 per barrel. The price of US West Texas Intermediate crude increased by 44 cents, or 0.5%, to USD 95.27.
Investors have sold their oil positions due to concerns that escalating interest rate increases to combat inflation will severely weaken the economy and reduce oil demand. In tumultuous trading on Tuesday, prices plunged by more than 7%. An additional worry for the producers is that raising US interest rates in reaction to high inflation may strengthen the dollar and depress oil prices. Warren Patterson, head of commodities strategy at ING, stated that lingering recession fears continue to pound the market, while the strength of the USD and flare-up in Covid cases in some of China is clearly not helping. The expected release of potentially heated U.S. consumer price index data later on Wednesday was mentioned by Stephen Innes, managing partner of SPI Asset Management. According to economists surveyed by Reuters, the numbers should demonstrate acceleration in US inflation to 1.1% monthly and 8.8% annually. In China, updated Covid-19 travel restrictions have had an impact on the market. To stop the spread of a highly contagious subvariant of the virus, several cities in the second-largest economy of the world have implemented new restrictions, ranging from commercial closures to general lockdowns. On 12th July, the dollar index—which measures the value of the dollar against a basket of six rival currencies—rose to 108.56, its highest level since October 2002, earlier the day. Since oil is often priced in US dollars, a stronger dollar makes the commodity more expensive to holders of other currencies, which reduces demand and lowers the dollar price of the commodity. For the week ending July 8, US crude stockpiles increased by around 4.8 million barrels. According to market sources citing American Petroleum Institute data on Tuesday, gasoline stockpiles increased by 3 million barrels and distillate stocks increased by roughly 3.3 million barrels. Investors are now waiting for additional hints on the U.S. Federal Reserve’s monetary policy path in the U.S. Consumer Price Index (CPI), which is due later today. Analysts expected that the print would increase by the highest amount since 1981, or a 40-year high, in June. Market observers are keeping a close eye on US President Joe Biden’s trip to the Middle East, where he is anticipated to urge Saudi Arabia and other Gulf producers to increase oil supply in order to support price stability. Physical crude market tightness has been obscured by worries about an economic slowdown. According to OPEC’s initial forecast for 2023, despite the fact that most members are now pumping at maximum capacity, more oil will still be required from the organization, thus consumers will not get any relief.
The Organization of the Petroleum Exporting Countries (OPEC) anticipated that in 2023, the world’s oil demand would increase and the market may stay competitive. It stated that in order to meet the demand in 2023 as opposed to 2022, its members will need an additional 900,000 bpd of oil. The American Petroleum Institute reported an increase of 4.762 million barrels in the U.S. crude supply for the week that ended on 8thJuly. Investors and producers are currently awaiting crude supply data from the U.S. Energy Information Administration, which is scheduled for release later today.