Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Oil recoups last week’s loss on softer rate hike, stronger demand signals 

Published 01/13/2023, 01:55 PM
Updated 01/13/2023, 03:20 PM
© Reuters.

By Barani Krishnan -- The softening inflation game in the United States is helping oil bulls out, though rising crude prices on their own might ultimately lead to higher inflation.

New York-traded WTI, or West Texas Intermediate, crude for February delivery settled up $1.47, or 1.9%, at $79.86 per barrel, after a session high at $79.93.  The U.S. crude benchmark rose 8.4% on the week, completely erasing losses from a week ago.

London-traded Brent crude for March delivery settled up $1.25, or 1.5%, at $85.28, after an intraday peak at $85.34. For the week, the global crude benchmark gained 8.5%, making up for all of the previous week's drop, like WTI.

Inflation, as indicated by the Consumer Price Index, or CPI, rose by 6.5% in the 12 months to December, the Labor Department said Thursday. It was the slowest annual advance for the CPI since October 2021 and indicated smaller rate hikes ahead by the Federal Reserve, which raised rates aggressively last year to curb price pressures.

Adding to the Labor Department data, the University of Michigan's closely-watched survey of consumers said on Friday that year-ahead inflation expectations among Americans has fallen for a fourth straight month in January, dipping to 4.0% from 4.4% in December. It was the lowest reading for price pressures since April 2021, the survey said.

The lower inflation readings are bolstering expectations that the Federal Reserve will keep to smaller rate hikes this year that would greatly assist businesses in the country, after the aggressive increases last year that sent tremors across markets. Those expectations have bolstered risk appetite in most forms this week, including in oil.

The Fed raised interest rates seven times last year, adding 425 basis points to rates which prior to that peaked at just 25 basis points, in the aftermath of the coronavirus pandemic. The central bank shocked markets by executing four back-to-back hikes of 75 basis points from June through November, before resorting to a modest 50-basis point increase in December. 

For its next rate decision on Feb. 1, economists expect the central bank to announce an even smaller hike of 25 basis points. The last time the Fed announced a 25 basis-point increase was in March 2022, at the start of its current rate hike cycle.

This week’s rebound in crude prices, coming after last week’s drop of more than 8% on both WTI and Brent that marked the worst annual debut in years for oil, could continue on the back of improving demand from China as the top energy importer tries to make a vigorous comeback from its own coronavirus crisis, some analysts said. 

Others said recent bids for crude by European buyers could lead to renewed upward price pressure in commodities, with oil being a key driver of inflation.

“Energy traders are starting to price in a little bit more crude demand coming out of Europe and not just China,” said Ed Moya, analyst at online trading platform OANDA. “The oil market is looking like it will remain tight.”

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.