Oil dips on US inflation data

Oil prices dipped on Tuesday and WTI fell below $86 per barrel. If the WTI price declines, it may encounter further support near $66 per barrel, while resistance can be found near $90.5 per barrel and higher up at the $98 per barrel level. 

Investors’ appetite for risk sank on Tuesday, as US CPI data released exceeded expectations. The Fed is likely to maintain a hawkish stance to combat persistently high inflation rates. Markets are currently wavering between a 50-bp and a 75-bp Fed rate hike in September, with odds favoring a 75-bp rate hike after Tuesday’s inflation data. Oil prices dipped following the release of the US CPI data, as risk sentiment sank.

Rising odds of aggressive rate hikes push oil prices down. Severe rate hikes stifle economic activity fuelling recession fears. Last week, the ECB performed its largest rate hike ever, increasing its interest rate by 75 bps. The global economic slowdown and recession concerns are decreasing the oil demand outlook, putting pressure on oil prices. 

Supply concerns prop up oil prices though, as new obstacles to the Iran nuclear deal raise doubts on whether Iran is committed to the deal. If the deal goes through, it can add more than a million barrels of oil per day to the global market providing some relief to oil demand.

OPEC+ members agreed last week to cut down production by 100,000 barrels per day to offset the potential return of Iranian barrels to oil markets. The organization has seen oil pricing slipping over the past month and has decided to curtail oil production to keep oil prices high. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks. 

Over the past few months, Russia’s war against Ukraine has destabilized oil markets. G7 finance ministers have agreed to impose a cap on Russian oil prices and Russian President Vladimir Putin has threatened to retaliate by halting oil and gas exports if price caps were imposed. 

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Written by:
Myrsini Giannouli

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