Oil tumbles on bearish US economic data

Published September 14, 2022
Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. — Reuters
Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, US. — Reuters

HOUSTON: Oil prices fell 2 per cent on Tuesday, reversing earlier gains as US consumer prices unexpectedly rose in August, giving cover for the US Federal Reserve to deliver another hefty interest rate increase next week.

Brent futures for November delivery fell $2.05, or 2.2pc, to $91.95 a barrel by 11:38 a.m. ET (1638 GMT). US crude was down $1.73, or 2pc, to $86.05 per barrel.

The consumer price index gained 0.1pc last month after being unchanged in July, the US Labour Department said. Economists polled by Reuters had forecast a 0.1pc fall.

Fed officials are set to meet next Tuesday and Wednesday, with inflation way above the US central bank’s 2pc target.

“The Fed may have to raise rates quicker than expected which could cause a ‘risk back off’ sentiment in crude and further strength to the dollar,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Oil is generally priced in U.S. dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.

Renewed COVID-19 curbs China, the world’s second-largest oil consumer, also weighed on crude prices.

The number of trips taken over China’s three-day Mid-Autumn Festival holiday shrank, with tourism revenue also falling, official data showed, as Covid-linked restrictions discouraged people from travelling.

Both contracts rose by more than $1.50 a barrel earlier in the session, supported by concerns over tighter inventories.

“The oil market’s structural outlook remains one of tightness, but for now, this is offset by cyclical demand headwinds,” Morgan Stanley said in a note.

Published in Dawn, September 14th, 2022

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