Crude prices rebounded on Thursday after a three-day slump, fueled by U.S. inflation data showing nine-month lows. The possibility of a smaller rate hike by the Federal Reserve in December sparked optimism among investors, benefiting businesses such as oil drillers and refiners. While most commodities surged on the news, crude prices lagged behind.
New York-traded WTI settled at $86.47 per barrel, up 0.75% after a 7% drop earlier in the week. Meanwhile, London-traded Brent gained 1.1% to settle at $93.67, following a 6% decline. The dollar’s significant drop against major currencies contributed to the rally in commodities, with gold soaring over 2% as the greenback fell sharply.
Oil’s limited increase was attributed to concerns over rising Covid cases and lockdowns in China, a key oil importer. The spike in infections in Guangdong province raised worries about potential restrictions similar to those imposed in Shanghai earlier in the year. Despite the positive impact of a potential Fed rate pivot, the ongoing challenges in China’s market weighed on oil prices.
Additionally, oil prices took a hit on Wednesday after data revealed a substantial increase in U.S. crude inventories, exceeding expectations by almost 4 million barrels. Inflation in the U.S., as measured by the Consumer Price Index (CPI), was reported at 7.7% over a 12-month period, lower than economists’ forecasts and the previous reading. This marked the lowest annual inflation rate since January, offering some relief amid concerns about rising prices.
The Federal Reserve has implemented multiple rate hikes since March to combat inflation, with a total of 375 basis points added to interest rates. Consumer spending has been affected by higher borrowing costs, leading to lower retail sales in October. The central bank, which executed four consecutive rate hikes between June and November, is now considering a more moderate approach with a 50-basis point increase in December.
The latest CPI data could support the Fed’s decision to opt for a smaller rate hike, given the lower inflation levels. This adjustment may help ease the financial burden on consumers and businesses, potentially stimulating economic growth. Despite the challenges posed by the ongoing pandemic and global market conditions, the prospect of a more balanced approach to monetary policy offers hope for a more stable and sustainable recovery in the energy sector and beyond.
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