Oil declines following inflation data

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Key points:

  • Oil prices fell due to concerns about continued high interest rates in the US.
  • The US CPI rose more than expected in April, which could lead to the Fed maintaining its tight monetary policy.
  • US crude oil and gasoline inventories fell last week.

Oil prices showed a decline after the publication of data from the United States, which raised concerns about the persistence of high interest rates.

As a result, Brent crude futures fell 98 cents, or 1.18%, to $82.38 a barrel. US West Texas Intermediate (WTI) crude futures lost $1.10, or 1.39%, to $78.02 a barrel.

CPI data: will inflation ease?

The US Producer Price Index (PPI) posted a larger-than-expected increase in April, fueling fears that the Federal Reserve will maintain higher interest rates to combat inflation.

Fed Chairman Jerome Powell has expressed the view that US inflation will continue to slow through 2024. However, he noted that his confidence in this forecast has weakened somewhat, since the rate of price growth in the first quarter was higher than expected.

The release of US consumer price index (CPI) data, scheduled for Wednesday, will be a key factor influencing the timing of a possible interest rate cut. Easing monetary policy could stimulate economic growth and, as a result, oil demand.

The US PPI is therefore putting pressure on oil prices as it signals a potentially longer period of tight monetary policy.

OPEC, the Middle East factor and fires: what else affects oil dynamics

In its monthly report, OPEC said global oil demand will increase by 2.25 million barrels per day (mb/d) in 2024 and by 1.85 mb/d in 2025.

Energy markets are also closely watching wildfires in western Canada, which could lead to reduced oil supplies and higher prices.

At the same time, the ongoing conflict in the Middle East may have an impact on prices in the opposite direction. Israeli tanks advanced deep into eastern Rafah, reaching residential areas of the southern border city.

U.S. crude oil and gasoline inventories fell last week, while distillate inventories rose, according to data from the American Petroleum Institute (API) released Tuesday. Official data on reserves from the US government will be published on Wednesday.

Crude oil inventories fell by 3.104 million barrels for the week ended May 10, according to API data. Gasoline inventories fell by 1.269 million barrels, while distillate inventories increased by 673 thousand barrels.


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