DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange advanced for the sixth consecutive session on Thursday, sending West Texas Intermediate futures above $78 per barrel (bbl) after the U.S. consumer price index for December showed inflation fell to a negative print for the first time since May 2020, relieving some pressure from the Federal Reserve that signaled it would shift to smaller rate increases of 25 basis points beginning next month.

"The days of us raising federal funds rates by 75 basis points at a time have surely passed ... hikes of 25 bps will be appropriate going forward," said President of Philadelphia Federal Reserve Bank Patrick Harker in reaction to the latest inflation data.

U.S. consumer prices for the final month of 2022 declined to a negative 0.1%, bringing the 12-month inflation to 6.5%, showed data published this morning by U.S. Bureau of Labor Statistics. The fall marked the sixth consecutive monthly deceleration in consumer prices since their mid-2022 peak and the lowest level since October 2021.

The most interesting part of the December report could be found in the core CPI -- considered the best indicator for inflation trajectory -- that still gained 0.3% on month. However, the shelter component of the core index contributed to most of the monthly gains. Shelter, housing costs that are based on paid rents rather than home prices, is notoriously slow to reflect price movement within the economy, typically taking up to six months to realign with the broader trend.

Easing inflation, meanwhile, is reflected in the sharp pullback by the U.S. dollar index that has been moving in a downtrend since early October with investors anticipating a less aggressive policy tightening by the Federal Open Market Committee in light of soft inflation readings. U.S. dollar index lost 0.9% in value on Thursday against a basket of foreign currencies to settle at a seven-month low 101.995, lending upside price support to front-month WTI futures.

Investors priced in a nearly 100% likelihood for the Federal Reserve to slow increases in the federal funds rate to 0.25% during the February meeting from 0.5% in December and 0.75% seen during FOMC meetings from July through November last year. A 0.25% hike by FOMC on Feb. 1 would lift the target range in the federal funds rate to 4.5% to 4.75%. Central bank officials have pledged to raise the rate above 5% this year and leave it there at least through 2023. However, there is a gap between what the Fed says it will do and what investors expect, with some betting on a shallower peak rate, and that the first rate hike would come as early as this summer.

At settlement, WTI for February delivery advanced $0.98 to $78.39 bbl, and Brent March futures on ICE rallied $1.36 to $84.03 bbl. NYMEX RBOB February contract gained $0.0408 to $2.4753 gallon, and front-month ULSD futures settled the session little changed at $3.2190 gallon.

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