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Futures Movers: Oil prices finish lower after stronger-than-expected U.S. inflation reading

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Oil futures finished lower on Tuesday after posting three consecutive session gains, as a stronger-than-expected reading on U.S. inflation helped strengthen the dollar and raise the likelihood of higher interest rates, which can dull demand for energy.

Price action

West Texas Intermediate crude for October delivery
CL.1,
-0.10%

CL00,
-0.10%

CLV22,
-0.10%

fell 47 cents, or 0.5%, to settle at $87.31 a barrel on the New York Mercantile Exchange.

November Brent crude
BRN00,
+0.41%

BRNX22,
+0.41%
,
the global benchmark was down 83 cents, or 0.9%, to settle at $93.17 a barrel on ICE Futures Europe.

Back on Nymex, October gasoline
RBV22,
+1.59%

rose 1.5% to $2.4804 a gallon, while October heating oil
HOV22,
-1.56%

lost 1.7% at $3.5413 a gallon.

October natural gas
NGV22,
+1.65%

rose 0.4% to $8.284 per million British thermal units.

Market drivers

The latest U.S. inflation reading provided a boost to the U.S. dollar, pressuring prices for oil which are traded in the greenback. The ICE U.S. Dollar index
DXY,
+1.37%

rose 1.3% to 109.771.

The “hot” CPI print also brought a 100 basis point rate hike into play at the September meeting, said Tyler Richey, co-editor of Sevens Report Research. A more aggressive Fed in the months ahead, “will choke off growth and ultimately weigh on broader consumer demand, including demand for refined products.”

Data released Tuesday showed the consumer-price index edged up by 0.1% in August, while economists polled by The Wall Street Journal had forecast a 0.1% drop. The so-called core rate of inflation that omits food and energy prices rose by a sharp 0.6%. Wall Street had forecast a 0.3% gain.

The report revealed that inflation has spread more broadly through the economy and is set to spur the Federal Reserve to sharply raise interest rates again.

“There are plenty of other factors impacting the oil market right now including Chinese lockdowns, the ongoing war in Ukraine, an increasingly urgent energy crisis in Europe, and a very strong U.S. dollar,” said Richey.

However, “leading up to next week’s Fed meeting, monetary policy expectations are likely to remain the dominant influence on the energy markets and frankly most asset classes globally,” he said.

Oil prices had seen some support in early trading after U.S. Secretary of State Antony Blinken joined France, the U.K. and Germany in expressing skepticism over the prospects of reinstating Iran’s nuclear pact soon, commodity analysts at Commerzbank wrote in a note, reducing the chances of more Iranian oil supply.

Meanwhile, investors were also paying attention to disappointing export figures from a number of producers. Citing data from Petro-Logistics, the Commerzbank analysts said Nigeria’s oil exports have fallen by half in three years. Kazakhstan exports were set to fall significantly next month to a six-year low, they said, citing loading data analyzed by Bloomberg.

The analysts, however, expressed doubt that market trends have turned upward “in any lasting fashion.”

If the International Energy Agency, in its monthly report on Wednesday, warns of considerable oversupply on the oil market, “sentiment could quickly shift again: in this case the market would probably test whether OPEC+ is really willing to defend higher oil prices by cutting production,” they wrote.

Separately, in a monthly report Tuesday, the Organization of the Petroleum Exporting Countries left its forecast for growth in world oil demand unchanged in 2022 and 2023.

Meanwhile, strategists at Morgan Stanley cut their near-term price forecasts for Brent and WTI oil prices. It lowered its fourth-quarter forecasts for Brent to $95 a barrel and WTI to $91, from $100 and $97.50, respectively.

“The oil market’s structural outlook remains one of tightness but for now, this is offset by cyclical demand headwinds,” the Morgan Stanley strategists wrote in a note dated Monday. Still, they said they see a firmer market again from the second quarter of 2023 onward.

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