Oil Down as US Inflation Signals Weak Crude Demand

By Adedapo Adesanya 

Oil was down on Thursday as inflation data in the United States implied a softening of the world’s biggest economy that could weaken crude demand.

Brent futures went down by 6 cents to $83.62 a barrel and the US West Texas Intermediate (WTI) futures depreciated by 28 cents to $78.26 a barrel.

The US Federal Reserve’s preferred inflation gauge, the US Personal Consumption Expenditures (PCE) index, showed January inflation in line with economists’ expectations.

The index rose 0.3 per cent last month, the Commerce Department’s Bureau of Economic Analysis said. Data for December was revised lower to show the PCE price index gaining 0.1 per cent instead of the previously reported 0.2 per cent. Goods prices fell 0.2 per cent as the cost of energy dropped 1.4 per cent, offsetting a 0.5 per cent rise in food prices.

This development means a June interest rate cut on the table after reports on consumer and producer prices earlier in February signalled sticky inflation which prompted investors to push back expectations of rate cuts to June from March.

Data from some of the region’s biggest economies in Eurozone showed that inflation dipped further this month, strengthening the case for the European Central Bank (ECB) to start easing interest rates later this year.

High-interest rates have served many major Western economies to curb inflation, potentially reducing economic growth and oil demand.

On the supply side, crude inventories in the US, the world’s top producer, have risen for a fifth consecutive week, increasing by 4.2 million barrels, official data from the US Energy Information Administration (EIA) showed on Wednesday.

An extension to voluntary oil output cuts from the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ producer group was also on the table.

The group agreed in November 2023 to voluntary cuts totalling about 2.2 million barrels per day for the first quarter this year, led by Saudi Arabia rolling over its voluntary cut.

OPEC pumped 26.42 million barrels per day this month, up 90,000 barrels per day from January, a Reuters survey found as Libyan output rose month-on-month by 150,000 barrels per day.

However, the Middle East conflict showed few signs of abating, with both Israel and Hamas playing down prospects for a truce in their war in Gaza with Qatari mediators saying the core issues remain unresolved.