Energy
Tuesday, December 12th, 2023 6:28 pm EDT
Key Points
- Oil Prices Experience a 4% Drop: The article reports a 4% decline in U.S. crude oil prices, with the West Texas Intermediate (WTI) contract for January losing $2.92 (4.09%) and the Brent contract for February shedding $2.97 (3.91%). This drop is attributed to concerns among traders about the Federal Reserve’s potential reluctance to ease up on interest rates, following inflation data.
- Inflation Data Sparks Anxiety Among Traders: Despite U.S. stocks showing resilience to the latest inflation data, the oil markets express worry. The Consumer Price Index (CPI) in November revealed a 0.1% increase after being unchanged in October, with a year-on-year rise of 3.1%, according to the Labor Department. Traders are anxious that the Federal Reserve might not effectively control inflation, leading to concerns about sustained low-interest rates.
- Market Dynamics and Oversupply Concerns: The oil market is facing challenges due to record production in the U.S., Canada, and Brazil, coupled with a weakening economy in China. This combination has raised fears among traders of oversupply. Additionally, predictions indicate that oil demand in the coming year could be around 1 million barrels per day less than the growth in supply. The article highlights skepticism among traders about OPEC members and their allies, including Russia, delivering on promises to cut supply by 2.2 million barrels per day in the first quarter of 2024. Analysts, such as Daniel Yergin, suggest that OPEC+ faces a crucial decision between persisting with supply cuts or releasing more oil into the market to adjust prices and undermine production in non-member nations.
U.S. crude oil faced a 4% drop on Tuesday, with the West Texas Intermediate (WTI) contract for January losing $2.92 (4.09%) to reach $68.40 a barrel. Simultaneously, the Brent contract for February shed $2.97 (3.91%) to trade at $73.06 per barrel. This decline was triggered by inflation data that raised concerns among traders about the Federal Reserve’s stance on interest rates.
While U.S. stocks remained relatively unaffected by the inflation data, the oil markets exhibited apprehension. The Consumer Price Index (CPI) in November showed a modest 0.1% increase after remaining unchanged in October, resulting in a 3.1% year-on-year price increase, according to the Labor Department. Traders expressed anxiety that the Federal Reserve might not have inflation under control, potentially necessitating a prolonged maintenance of low-interest rates.
Analyst Phil Flynn from the Price Futures Group noted that the oil market’s confidence has been shaken after a seven-week streak of losses. Federal Reserve Chair Jerome Powell, earlier in the month, mentioned that discussing interest rate cuts is “premature” and indicated the readiness to raise rates if required. This stance contributed to traders’ concerns about a lack of decisive action to curb inflation.
Oil prices have been under pressure due to record production in the U.S., Canada, and Brazil, coupled with a weakening economy in China. This combination has led to fears of oversupply in the market. Forecasts suggest that oil demand in the upcoming year is expected to be approximately 1 million barrels per day less than the growth in supply, according to Daniel Yergin, Vice Chairman of S&P Global. Yergin emphasized the prevailing downward pressure on prices as long as supply and demand imbalances persist.
In an effort to address oversupply concerns, several OPEC members and their allies, including Russia, have pledged to cut supply by 2.2 million barrels per day in the first quarter of 2024. However, traders remain skeptical about the group’s commitment to implementing these cuts. Yergin highlighted the dilemma facing OPEC+ — whether to continue cutting supply or release more oil into the market, allowing prices to slide and undermining production in non-member nations. The uncertainty surrounding these dynamics contributes to the ongoing volatility in the oil market.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/12/us-crude-oil-falls-4percent-as-traders-worry-about-inflation-impacting-demand.html
