On Thursday, oil prices increased by around $1 per barrel, helped by data showing that U.S. consumer prices unexpectedly declined in December and by confidence regarding China’s demand forecast.
The decrease in the U.S. consumer price index indicates that inflation has entered a persistent downward trend. Following the lifting of tight COVID-19 restrictions, top oil importer China is reopening its economy, raising expectations for increased oil demand.
Brent crude increased $1.36 or 1.7% to settle at $84.03 a barrel. American West Texas Intermediate crude gained 98 cents or 1.3% to settle at $78.39 per barrel.
Oil prices rose as a result of the U.S. dollar’s decline versus the euro, which was further aided by inflation data that raised hopes that the Federal Reserve would be less aggressive in future rate hikes.
According to Bob Yawger, director of energy futures at Mizuho in New York, “the market was anticipating the CPI data and the strong probability the number would spawn a decline in the dollar, with the reverse correlation super powering the bid in crude oil.” “The weak dollar is currently feeding crude oil.”
On Wednesday, both oil benchmarks increased by 3% amid optimism that the world economy would not be as bad as many had feared.
Before the CPI data was released, Craig Erlam of brokerage OANDA stated, “A softer landing for the U.S., and potentially abroad, combined with a strong economic comeback in China following the current COVID wave might result for a much stronger year than feared and encourage extra oil demand.”
Due to sanctions for its invasion of Ukraine, the market is also preparing for an extra restriction on Russian oil supply.
According to the U.S. Energy Information Administration, the EU prohibition on seaborne imports of petroleum products from Russia that will go into effect on February 5 may cause greater havoc than the EU ban on seaborne imports of Russian crude oil that went into effect in December 2022.
A significant and unexpected increase in U.S. crude oil inventories restrained oil’s advances.
Jim Ritterbusch of consultancy Ritterbusch and Associates said, “Other than the China factor and recent lift in the equities amidst some weakening in the dollar, the complex doesn’t appear to possess much bullish impetus, especially when viewed within the context of transparent U.S. crude and product balances.
In the week ending January 6, crude oil inventories increased by 19 million barrels to 439.6 million barrels. Reuters polled analysts, who predicted a decrease of 2.2 million barrels.