- US consumer prices rose in April, potentially increasing the likelihood of higher interest rates.
- Due to a national reserve release, US crude oil inventories rose by about 3 million barrels last week.
- Lower crude imports and slower export growth in China worsened demand concerns.
On Wednesday, oil prices fell by more than a dollar a barrel, ending a three-day rally. The drop came after economic data suggested that the US Federal Reserve may hike interest rates further.
US consumer prices rose in April, potentially increasing the likelihood of higher interest rates. Global interest rate increases have worried traders about a recession, causing lower oil prices.
US consumer price increases in April slowed to below 5% annually for the first time in two years. This decrease in a key inflation measure monitored by the Federal Reserve may allow the central bank to delay interest rate hikes next month.
However, Wednesday’s Labor Department report indicates that inflation is still high. Monthly consumer prices rose because of high rents and rebounds in gasoline and used motor vehicle costs. This mixed report disappointed financial markets’ hopes for Fed rate cuts to support the economy.
Additionally, the Energy Information Administration disclosed that US crude oil inventories rose by about 3 million barrels last week due to a national reserve release and a decline in exports. The report confirmed industry data from late Tuesday, which reported an unexpected build weighing prices.
The unexpected US crude inventory build worsened concerns about global oil demand, as did lower crude imports and slower export growth in China in April.
Nevertheless, the decrease in crude prices was partially offset by an increase in US gasoline demand in anticipation of the summer driving season. EIA data showed that US gasoline inventories dropped by 3.2 million barrels last week, surpassing analysts’ forecast of a 1.2 million-barrel draw. The data also revealed that distillate stocks decreased.
Jay Hatfield, the CEO of Infrastructure Capital Management, stated that concerns about economic growth linked to the banking crisis and the typical seasonal decline in energy demand during the spring have contributed to the decrease in oil prices.
He predicts that oil prices will fluctuate between $75-95 in 2023 due to the basic principles of supply and demand. Hatfield anticipates that oil prices will increase as we approach the summer driving season.