Oil Futures Fall in Choppy Trade Ahead of US Inflation Data

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session with modest losses, sending West Texas Intermediate below $92 per barrel (bbl) on spot charts. The moves came as investors turned cautious ahead of the U.S. consumer price index report and midterm elections that could see one or both chambers of Congress shift to Republican control.

NYMEX December West Texas Intermediate settled at $91.79 per bbl, down 82 cents per bbl on the session, with January Brent, the international crude benchmark, falling 65 cents per bbl to $97.92 per bbl. NYMEX December RBOB futures declined 8.17 cents to $2.6531 per gallon, and December ULSD futures retreated 13.37 cents to $3.7811 per gallon.

The U.S. dollar pulled back 0.64% against the basket of foreign currencies but had little impact on the direction of oil prices, which typically have an inverse correlation with the dollar index. The greenback's weakness comes ahead of Thursday's release of October U.S. consumer price index data that is forecast to show moderation in the headline inflation of 7.9% from a year earlier, down from September's year-over-year increase of 8.2%. Core CPI, which excludes the volatile food and energy categories, is projected to come in at 6.5%, little changed from last month's 6.6%.

The U.S. economy added 261,000 jobs in October, another robust employment figure that strengthened the case for yet another large interest rate increase at the Federal Open Market Committee meeting on Dec. 13-14. The central bank delivered a fourth consecutive interest rate hike of 75 basis points last week while hinting at a slower pace of hiking but a higher final terminal rate.

Underpinning losses in the oil complex are bearish headlines out of China suggesting COVID-19 infections are once again on the rise in the nation's two largest cities: Beijing and Shanghai. Health officials at China's National Health Commission said the country will "unswervingly" adhere to current virus controls, dashing optimism over a rumored reopening that helped crude to rally to a two-month high last week.

The country reported 5,436 new cases on Sunday, up 27% from the day before and the most since May 2, when Shanghai was in the midst of its months-long lockdown.

"Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct," Hu Xiang, an official at the National Health Commission's Disease Prevention and Control Bureau, told reporters. "The policies are also the most economical and effective."

Some economists would disagree. China's economy this year is forecast to grow at its slowest pace since the 1970s, with COVID controls slicing off an estimated 2.5 percentage points from its economic growth, according to the International Monetary Fund.

While this containment strategy has saved lives, it has also clouded China's outlook, exacerbated supply chain disruptions, and kept millions under lockdown for months.

Speculation has sprung up in recent days that China will soon abandon its zero-COVID policy. The latest trigger came in the form of a transcript attributed to former state official Zeng Guang, who said at an investment conference organized by Citi Group that Beijing is prepared to make substantial changes to its zero-COVID policy next year.

China is said to first scrap a "circuit breaker" system that suspends international flights, which brought infected passengers to the country and ease quarantine restrictions for international travelers.

China is the world's largest oil importer, and changing those restrictions could give a significant boost to global fuel demand. Regardless of the exact path to reopening, Beijing will likely lift COVID restrictions gradually contingent on the speed of the viral spread and some sort of mass-vaccination program. So far, little evidence exists that China is preparing another mass vaccination campaign.

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

Liubov Georges