DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Monday's session modestly higher. The gains came as the U.S. dollar retreated ahead of the release of Tuesday's inflation report, which is expected to show further moderation in consumer prices, although some signs point to an upside risk in prices paid for core services -- a measure closely monitored by the Federal Reserve.

Equities rallied, the dollar index softened against global currencies, and oil futures clawed back earlier losses as investors await the Bureau of Labor Statistics' Consumer Price Index scheduled for Tuesday morning. Consensus calls for a 0.5% monthly increase in overall prices paid by consumers, probably driven by a renewed uptick in gasoline and energy costs. January's monthly core inflation rate, however, is expected to hold at December's level of 0.3%. On an annualized basis, both headline and core inflation are expected to moderate to 6.2% and 5.5%, respectively. The key question is whether a tight labor market at the start of the year translated into higher consumer prices.

"Some of the temporary factors that were holding inflation down, especially falling used car prices, are probably over. On the other side, official shelter prices are still rising fast, even though market rents are probably falling, because of known lags," tweeted Nobel laureate and economist Paul Krugman.

"The market is starting to sense that the very comforting disinflation story is more complex than we would like it to be," said Mohamed El-Erian, chief economic adviser at Allianz.

Higher-than-expected inflation in January would likely signal that the Federal Open Market Committee will need to hike the federal funds rate, now in a 4.5% to 4.75% target range, even higher, putting downward pressure on the economy and the market.

Last week, Fed Chairman Jerome Powell reiterated that there is still a long way to go in the fight against inflation. Powell also noted that interest rates could rise more than markets anticipate if high inflation readings do not abate, dampening optimism in the market that the central bank would cut rates soon. Currently, most investors expect the FOMC to raise the federal funds rate 25 basis points in March followed by a similar rate increase in May before the central bank hits pause until December when a rate cut is expected.

Earlier in the session, oil futures came under selling pressure from reports suggesting Turkey's export port of Ceyhan resumed operations on Monday after a 7.8-magnitude earthquake disrupted regional infrastructure last week. BP Azerbaijan confirmed Monday morning that tanker loadings of Azeri crude oil at the Turkish port resumed at full capacity.

BP operates the 1.2 million bpd Baku-Tbilisi-Ceyhan pipeline, which carries crude from Azerbaijan's oil fields through Georgia and Turkey. Turkey's energy ministry added repair work on Berths 1 and 2 at the Ceyhan terminal has been completed and the port is set to resume normal operations beginning this week. Ceyhan port is the key export hub for Azeri, Kazakh, and Iraqi oil exports, exporting around 1 million barrels per day (bpd) or 1% of global oil supply.

At settlement, West Texas Intermediate futures for March delivery added $0.42 to $80.14 per barrel (bbl), and the international crude benchmark Brent contract on ICE gained $0.41 at $86.61 per bbl. NYMEX RBOB March contract advanced $0.0274 to $2.5311 per gallon, and March ULSD futures rallied $0.0411 to settle at $2.9057 per gallon.

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

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