By Barani Krishnan
Investing.com -- Crude prices climbed out of a three-day hole as U.S. inflation at 9-month lows suggested the Federal Reserve could do a smaller rate hike in December that could benefit businesses as a whole, including oil drillers and refiners.
But while most commodities rallied strongly Thursday on the prospect of the Fed rate pivot — gold, for instance, gained more than 2% as the dollar fell its most in a day in 11 years — crude was one of the laggards.
New York-traded West Texas Intermediate, or WTI, settled up 64 cents, or 0.75%, at $86.47 per barrel, after a 7% slide between Monday and Wednesday. Just before this week’s tumble, the U.S. crude benchmark hit a three-month high of $93.74 on Monday.
London-traded Brent, the global benchmark for oil, settled up $1.02, or 1.1%, at $93.67, after a 6% drop in the past three days. On Monday, Brent came within cents of touching $100, with a session high of $99.56.
Commodities saw a broad-based rally on Thursday as the Dollar Index, which pits the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, fell 1.9% to hover at the 108 mark versus last Thursday’s three-week high above 113. Investing.com data showed it to be the dollar’s biggest percentage loss in a day since Oct. 27, 2011 when it also fell 1.9%.
OIl’s relatively modest rise was due to continued horror stories on Covid infections and lockdowns in top oil importing country China. In the capital of China’s export-heavy Guangdong province, new coronavirus cases exploded, raising fears of late that the area could see the type of tough curbs placed on Shanghai earlier this year.
“To the oil market, the damage from China lockdowns far outweigh the benefits from any easing in Fed rates,” said John Kilduff, partner at Again Capital, a New York-based hedge fund.
China Covid fears aside, oil also saw an outsized price drop on Wednesday after data showing U.S. crude inventories jumping by almost 4.0 million barrels during the week to Nov. 4, about three times more than forecast.
On the inflation front, the U.S. Consumer Price Index, or CPI, expanded by just 7.7% over a 12-month period, versus a growth of 8% forecast by economists and against the previous yearly growth of 8.2% to September. Historical data showed it to be the lowest annual reading for inflation since January.
Prior to October, both the White House and economic policy-makers at the Federal Reserve had struggled to contain inflation, with the annual reading for the CPI hitting a four-decade high of 9.1% in June.
In its bid to control inflation, the Fed has added 375 basis points to interest rates since March via six rate hikes. Prior to that, interest rates were at a peak of just 25 basis points as the central bank cut rates to nearly zero after the global outbreak of the coronavirus pandemic in 2020.
The Fed’s rate hikes have pushed up borrowing costs, adding to higher overall expenses for consumers, some of whom have begun to rein in their spending. U.S. consumer confidence, one of the pillars of the economy, hit three-month lows in October, according to The Conference Board, which groups public and private corporations that track and publish economic data.
The Fed, which executed four back-to-back jumbo rate hikes of 75 basis points from June through November, is contemplating a more modest 50-basis point increase in December. The latest CPI reading might enable the central bank to do that, economists said.