Oil prices fell 2% on Tuesday, reversing earlier gains as U.S. consumer prices rose unexpectedly in August, giving the U.S. Federal Reserve cover for another big interest rate hike the next week.
Brent crude futures for November delivery fell $2.05, or 2.2%, to $91.95 a barrel at 11:38 a.m. ET (4:38 p.m. GMT). U.S. crude fell $1.73, or 2%, to $86.05 a barrel.
The consumer price index gained 0.1% last month after remaining unchanged in July, the US Department of Labor said. Economists polled by Reuters had expected a decline of 0.1%.
Fed officials are due to meet next Tuesday and Wednesday, with inflation well above the US central bank’s 2% target.
“The Fed may have to raise rates faster than expected, which could lead to a sense of ‘falling risk’ in crude oil and further dollar strength,” said Dennis Kissler, senior vice president of trading at BOKFinancial.
Oil is usually priced in US dollars, so a stronger greenback makes the commodity more expensive for holders of other currencies.
The novel COVID-19 drag on China, the world’s second-largest oil consumer, has also weighed on crude prices.
The number of trips made during China’s three-day Mid-Autumn Festival holiday declined, with tourism revenue also declining, official data showed, as COVID-related restrictions discouraged people from travelling.
Both contracts rose more than $1.50 a barrel earlier in the session, supported by concerns over tighter stocks.
“The structural outlook for the oil market remains tight, but for now this is being offset by cyclical demand headwinds,” Morgan Stanley said in a note.
The United States’ Strategic Petroleum Reserve (SPR) fell 8.4 million barrels to 434.1 million barrels last week, the lowest since October 1984, government data showed Monday.
U.S. commercial oil inventories are expected to have risen by 800,000 barrels in the same week, analysts said in a Reuters poll.
Weekly industry inventory data from the American Petroleum Institute (API) is due at 4:30 p.m. EDT (2030 GMT), followed by the government report at 10:30 a.m. EDT on Wednesday.
“We remain constructive on oil prices despite intensifying demand headwinds as supply remains supportive with slower-than-expected U.S. production growth and proactive OPEC+,” wrote energy analyst Amarpreet Singh. at Barclays, in a note.
Prospects for a relaunch of the nuclear deal between the West and Iran remained dim. Germany on Monday regretted Tehran’s failure to respond positively to European proposals to revive the 2015 deal. US Secretary of State Antony Blinken said a deal would be unlikely in the short term.
The Organization of the Petroleum Exporting Countries on Tuesday maintained its forecast for robust growth in global oil demand in 2022 and 2023, citing signs that major economies are doing better than expected despite headwinds such as surging global warming. ‘inflation.
(Additional reporting by Ahmad Ghaddar in London, Isabel Kua in Singapore; Editing by Marguerita Choy and Bernadette Baum)
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