Oil falls amid rising yields – US inflation is out

So far, today is a chaotic US session. The price of black gold fell by more than 1% as investors focused on US macroeconomic data and the bond market.

US inflation meets expectations

In February, the Consumer Price Index (CPI) reported that headline inflation grew 0.4% over the previous month and 6% over the previous year. This is a decrease from January’s 0.5% month-over-month increase and 6.6% annual gain. According to statistics from Bloomberg, both criteria met economists’ predictions.

The 6% inflation rise represents the weakest yearly increase in consumer prices since September 2021. Furthermore, “core” inflation, which excludes the more variable costs of food and energy, increased 0.5% over the previous month and 5.5% from a year earlier, marking the lowest 12-month gain since December 2021. 

You may also read: Financial sector bleeds amid bank failures; who’s next to go bust?

As a reaction to the data, US bonds declined, pushing their respective yields higher, likely undermining the commodities further. 

“We see Monday’s developments around the regional US banks as more noise than news for commodity markets, and it should not have any meaningful medium- to longer-term impact,” said UBS analyst Carsten Menke.

Is Fed done with tightening?

Fed Fund futures prices indicate that the markets have completely ruled out a 50 basis point raise by the Fed when it meets the following week, with the majority of traders pricing in a 25 basis point boost. A minority of traders expect the Fed to maintain its current rate policy.

Don’t miss: Depegging of stablecoins – what does it mean and why is it happening?

Oil markets were shaken by rising interest rates during 2022, and prices have remained down thus far in 2023. Even so, this year’s increased likelihood of a recession has contributed to current crude price pressure.

OPEC is optimistic about Chinese demand

In addition, weaker-than-expected Chinese economic statistics dampened optimism that the nation’s rebound could propel oil consumption to new highs this year. As a result, OPEC raised its forecast for China’s oil demand growth in 2023. OPEC predicts that world consumption will increase by 2.32 million barrels per day (bpd), or 2.3%, in 2023.

In light of this, OPEC predicts Chinese oil consumption to increase by 710,000 bpd in 2023, up from 590,000 bpd last month, and a decline in 2022. The OPEC was cautious about economic prospects, maintaining its global growth forecast for 2023 at 2.6%. However, the research also mentioned the US Federal Reserve’s excellent management of a decelerating inflation rate, among potential positive reasons.

Also interesting: GBP/USD corrects yesterday’s gains, awaits US CPI

If the daily candle closes below the short-term uptrend line (below $74), the huge triangular pattern would be broken to the downside, which might result in more losses for oil. In such a situation, the price of oil might rapidly return to recent swing lows near $70.50.

WTI futures 1D chart, source: tradingview, author’s analysis