Crude Oil Market Jumps on Strong US Producer Data

By Adedapo Adesanya

The crude oil market rose on Tuesday after data signalled that inflation could start to subside in the world’s largest oil-producing country, the United States, which would be a positive for the demand for the commodity.

Business Post reports that Brent crude grade rose by $1.02 or 1.1 per cent yesterday to $94.16 a barrel while the US West Texas Intermediate (WTI) crude grade appreciated by $1.18 or 1.4 per cent to $87.05 per barrel.

Price support came as US producer prices increased less than expected in October, with the data also showing a decline in the cost of wholesale goods excluding food and energy, reflecting improved supply chains as well as slowing demand from higher borrowing costs.

This gives evidence that inflation was starting to ease, which could allow the US Federal Reserve to slow its aggressive pace of interest rate hikes.

Consumer prices rose less than expected in October, pushing the annual increase below 8 per cent for the first time in eight months.

Also, the US Dollar index fell, making greenback-denominated assets like oil less expensive for other currency holders.

The International Energy Agency (IEA) forecast that a gloomy economic outlook will put global oil use on track to contract by nearly a quarter million bpd in the fourth quarter of 2022 on a year-on-year basis, with demand growth slowing to 1.6 million barrels per day in 2023 from 2.1 million barrels per day this year.

It also noted that the European Union ban on seaborne-Russian crude, set to start on December 5, means that 1.1 million barrels per day must be replaced.

This means the EU will need to replace 1 million barrels per day of crude and 1.1 million barrels per day of oil products, with diesel especially scarce and expensive, with prices 70 per cent higher than this time last year, helping to fuel global inflation, the IEA said.

Investors cheered China’s announcements last week that it would reduce the impact of a strict zero-COVID policy to spur economic activity and energy demand, but analysts said lockdowns and surging case numbers remained a downside risk.

The country’s COVID cases rose further on Tuesday, including in the capital Beijing, and the country’s factory output growth slowed.