DTN Oil

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange extended losses into morning trade Thursday after Organization of the Petroleum Exporting Countries revised lower its 2021 global demand forecast, citing weaker-than-expected fuel consumption in China and India, while investor concerns that surging U.S. inflation would force the Federal Reserve to hike interest rates as early as next year, making an abrupt departure from expansionary fiscal policies, added to the selling pressure.

U.S. dollar cracked above the key 95-level in early index trade Thursday, surging more than 1% against its global peers after sharp appreciation Wednesday after the U.S. Bureau of Labor Statistics reported domestic inflation spiked to 6.2% on an annualized basis in October -- the highest level in three decades. Alarmingly, price increases spread well beyond the parts of the economy that were most affected by the pandemic, like gasoline prices and cars. Economists estimate domestic inflation could breach 7% by year end before gradually easing in mid-2022. This scenario, however, would likely prompt U.S. Federal Reserve to conclude the tapering process of $120 billion of monthly bond-buying stimulus as early as first quarter 2022 -- about three months ahead of consensus.

The Fed has already begun to back away from the narrative of "transitory inflation" in recent weeks, with a growing number of officials leaning toward raising interest rates next year instead of waiting until 2023. Wednesday's inflation data could accelerate the timetable.

Further weighing on the oil complex, OPEC this morning downgraded global demand projections to 96.4 million barrels per day (bpd) for 2021, down 160,000 bpd from the previous month forecast. Global demand growth is now seen at 5.7 million bpd.

A wave of COVID-19 infections that triggered targeted lockdown measures, as well as weaker manufacturing output and power sector challenges in China, reduced third quarter transportation and industrial fuels demand against initial expectations. India's oil demand in the third quarter was also adjusted lower due to a slower recovery in the demand for industrial fuels. Some of this slower momentum is now projected to spill over into the 2022.

For 2022, growth in worldwide oil consumption remains unchanged compared to the previous month's assessment, to stand at 4.2 million bpd. World total demand in 2022 is now estimated to reach 100.6 million bpd, around 500,000 bpd above 2019 levels.

"Marginal upward revisions in OECD Europe, due to better economic views in some European countries, were offset by softer growth in industrial fuel demand in OECD America and Latin America," said OPEC in its Monthly Oil Market Report released this morning.

Near 7:30 a.m. ET, NYMEX West Texas Intermediate futures for December delivery declined $0.71 to $80.67 per barrel (bbl), and international crude benchmark Brent January futures eroded $0.50 to $82.11 bbl. NYMEX RBOB December futures declined 0.87 cents to $2.2885 gallon and front-month NYMEX ULSD futures fell 2.15 cents to $2.4306 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com