Oil swings as energy prices spur soaring US inflation

Brent for September settlement lost 1.2% to $98.30.
Image: Peter Kollanyi/Bloomberg

Oil flipped between slim gains and losses on Wednesday as US inflation figures topped estimates, with high energy prices leading much of the gains.

West Texas Intermediate traded near $96 after tumbling the previous session to close at a three-month low. US consumer prices jumped in June by 9.1% year-on-year, the largest gain in over four decades. Market participants fear the report will keep the Federal Reserve geared for another big interest-rate hike and lead to possible economic slowdown.

Crude prices pose a high risk to global economic recovery, with signs that fuel costs are starting to “take their toll” on demand growth, the International Energy Agency said in a report. Increases in the energy sector accounted for nearly half of all consumer price spikes in the US June inflation report, according to Labor Department data released Wednesday.

“The oil market might be tight, but high energy costs are clearly leading to crude demand destruction,” said Ed Moya, senior market analyst at Oanda Corp.

Oil’s rally reversed earlier this month on escalating concern over a global slowdown as central banks including the Federal Reserve boosted interest rates to quell raging inflation. Prices have sunk despite signs that energy markets remain tight in the near term as the war in Ukraine drags on and supply risks persist.

OPEC’s first outlook for 2023 suggests that there will be no relief for squeezed consumers, with more oil needed from the group even though most members are already pumping flat out.

Meanwhile, US President Joe Biden has repeatedly called on OPEC to pump more and is scheduled to visit Saudi Arabia this week during a tour of the Middle East. The kingdom along with the United Arab Emirates are the only cartel members with significant volumes of unused production capacity.

Prices
  • WTI for August delivery fell 29 cents to $95.55 a barrel at 9:36 a.m. in New York.
    • The contract had earlier gained as much as 1.6%.
  • Brent for September settlement lost 1.2% to $98.30.

The American Petroleum Institute reported that US crude stockpiles rose by 4.76 million barrels last week, according to people familiar with the figures. The Energy Information Administration will report data on Wednesday.

China’s exports expanded at a faster pace than expected in June as Covid disruptions continued to ease, though concerns about virus outbreaks remain. Some residents in Shanghai have been urged to stockpile food and medicines as the fear of returning to lockdown hangs over the city.

© 2022 Bloomberg

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