WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Tuesday's session with gains between 3.5% and 4.5%. Futures were turbocharged by a steep drop in the U.S. dollar index after a report on inflation showed consumer prices in November increased at the slowest pace since December 2021, solidifying the case for less-aggressive interest rate increases from the Federal Open Market Committee.
November's inflation report released Tuesday morning by the Bureau of Labor Statistics confirmed a continued downtrend in U.S. consumer prices that have retreated from the summer peak of 1.3% to a monthly gain of just 0.1%. On an annualized basis, inflation rose by 7.1% in November -- the smallest 12-month increase since December 2021. What's more promising is the core inflation index, which measures underlying inflation, increased just 0.2% over the month and 6% since last year -- well below market expectations.
Falling gas prices, down 2% in November from the prior month, and used vehicle prices, down 2.9%, helped cool the overall inflation pace more than economists expected. Tuesday's report showed that rent prices were by far the largest contributor to overall inflation last month, rising 0.6% since October and offsetting the impact of falling energy prices. Overall food prices still rose 0.2% from October, driven by everyday groceries like cereals, milk and fruits.
Though the report clearly showed a deceleration in inflation, ongoing price increases are still very elevated and over three times greater than the Federal Reserve's 2% target.
Federal Reserve Chairman Jerome Powell in a recent speech acknowledged that some aspects of inflation proved stickier than first thought, adding "because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category."
In November, the U.S. labor market added 263,000 new jobs, even as layoffs in some industries like tech and banking sectors have been making the headlines.
The FOMC'S next interest rate announcement is slated for 2 p.m. EST Wednesday, followed by a speech from Powell 30 minutes later. Economists and analysts alike forecast the central bank will authorize a 0.5% increase in the federal funds rate on Wednesday that will be followed by three 0.25% hikes in the overnight borrowing rate between banks early next year. That would still push the federal funds rates to 5.25% -- the highest level since 2007.
Also on Tuesday, oil traders positioned ahead of the release of the weekly inventory report from the American Petroleum Institute scheduled for 4:30 p.m. EST, followed by official data from the U.S. Energy Information Administration Wednesday morning.
U.S. commercial crude oil stockpiles likely have fallen 3.1 million barrels (bbl) for the week ended Dec. 9, with estimates ranging from a decrease of 4.5 million bbl to an increase of 1.8 million bbl. Analysts noted the likely decrease would come despite a large transfer of crude last week from the nation's Strategic Petroleum Reserve to the commercial side.
Gasoline stockpiles are expected to have increased by 2.6 million bbl from the previous week, while stocks of distillates are seen to have risen 2 million bbl last week. Refinery use likely decreased by 0.1% from the previous week to 95.4% of capacity.
Traders will parse through the data Tuesday afternoon and Wednesday morning for clues on the impact of lost crude flow amid the Keystone pipeline outage on stocks at the tank farm in Cushing, Oklahoma, and refinery run rates in the Midwest and Gulf Coast refining sectors.
The 610,000-barrel-per-day (bpd) pipeline remained shut Tuesday afternoon after operations were halted due to the leak discovered on Dec. 7 in Kansas. TC Energy, the operator of the pipeline, did not give a specific timeline or an update on the potential restart of the pipeline.
"Our teams continue to actively investigate the cause of the incident," said TC Energy on Sunday. "We have not confirmed a timeline for re-start and will only resume service when it is safe to do so, and with the approval of the regulator."
The affected segment of the pipeline cannot resume operation until regulators approve a restart plan in its entirety, according to a U.S. Department of Transportation statement.
The pipeline runs from Alberta to Steele City, Nebraska, before splitting into two lines that carry crude to Pakota, Illinois, and Cushing.
At settlement, January West Texas Intermediate futures advanced $2.22 to $75.39 per bbl, and February Brent futures on ICE gained $2.69 to $80.68 per bbl. NYMEX January RBOB futures rallied $0.0799 to $2.1609 per gallon, and January ULSD futures spiked $0.1237 to $3.0922 per gallon.
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