Oil Rise Halts on Blistering Inflation Report

Oil & Gas

Oil posted its seventh weekly gain as tight fuel-supply balances sustain bullish fundamentals, though headwinds brought on by accelerating US inflation capped crude’s advance.  

West Texas Intermediate fell 0.7% after trading in a $4 range during a volatile session on Friday. Despite the fall, WTI ended the week 1.5% higher. The US Labor Department reported inflation quickened to a 40-year high, chilling broader markets and potentially signaling to the Federal Reserve to extend an aggressive series of interest-rate hikes. 

“We are looking at inflation that’s really off the charts here,” said Tariq Zahir, managing member of the global macro program at Tyche Capital Advisors LLC. “Crude is going to be at the mercy of the markets.”

While traders assess inflation’s impact on long-term demand, the market for more immediate physical barrels is showing extreme tightness. On Friday, North Sea Forties crude, one of the grades that underpins the global Dated Brent benchmark traded at a premium of more than $4 to its benchmark, the biggest since at least 2008.

Demand for supplies that are relatively easy to process has grown since the war in Ukraine sent natural gas prices roaring higher. The European Union also is working to ban Russian crude imports, stoking supply fears and compounding inflation risks. At the same time, refiners are churning through as much crude as they can as prices of fuels surge to record highs.

Prices:

  • WTI for July delivery dropped 84 cents to settle at $120.67 a barrel in New York.
  • Brent for August settlement declined $1.06 to settle at $122.01 a barrel.

Meanwhile, rising prices at the pump are still causing pain for Americans with gasoline on the verge of hitting $5 a gallon. With some banks forecasting gasoline will rise to above $6 by the end of the summer, pressure will continue to grow on President Biden to seek measures to allay costs. 

Elsewhere, China continued its Whac-A-Mole approach to Covid, lifting restrictions in some areas while imposing new curbs in others. Shanghai will lock down seven districts this weekend to mass-test millions of people as Covid-19 cases continue emerging there. China National Petroleum Corp., the nation’s top oil producer, this week forecast rising demand in the third quarter but warned of the potential for further disruptions from fresh outbreaks.

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