DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange (NYMEX) and Brent crude traded on the Intercontinental Exchange took a more than 3% nosedive on Tuesday following the U.S. consumer price index report showed inflation remained sticky in November despite a broad-based retreat in gasoline and energy prices, diminishing the outlook for the Federal Reserve to start cutting interest rates during the first quarter 2024.

U.S. CPI report for November delivered a major surprise to the upside in price categories considered to be barometers of underlying inflation and, as such, are closely monitored by the central bank. So-called super-core inflation, which includes shelter and services categories, rose to 0.5% from October's 0.3% reading. On a headline basis, CPI also increased by 0.1% from the previous month as the decline in gasoline and fuel oil prices was more than offset by rising prices for services.

In November, Americans paid more for rent, food, airline tickets and medical care services. These are the kind of broad-based price increases that should spur hawkish rhetoric from the Federal Open Market Committee on Wednesday when officials conclude the year's final policy meeting.

Despite today's CPI, consensus is near universal that the central bank will hold the federal funds rate unchanged in a 5.25% to 5.5% target range but likely to push back against the narrative of aggressive rate cuts early next year. Currently, markets still price in 100 basis points of rate cuts next year which would bring the target range to 4.25% to 4.5% by the end of 2024.

The underlying concern for the Federal Reserve and markets is that there is still plenty of momentum in the U.S. economy that could potentially present an upside risk to inflation in 2024. For instance, November's employment report revealed the U.S. labor market is still running hot with employers adding nearly 200,000 jobs for the month and the unemployment rate falling back to a four-month low of 3.7%. Job gains were broad-based, with healthcare, services and government driving the monthly unemployment increase.

Also on Tuesday, oil traders positioned ahead of the weekly inventory survey from the American Petroleum Institute due out at 4:30 a.m. ET, followed by the U.S. Energy Information Administration on Wednesday morning. Consensus of analysts and traders surveyed by the Wall Street Journal reveal commercial crude stockpiles in the United States likely fell by 1.2 million barrels (bbl) during the week ended Dec. 8. Expectations range from a stock build of 2 million bbl to a draw of 3.3 million bbl. This would mark the second weekly drawdown from commercial stockpiles if realized as domestic refiners bring back shut-in utilization following a heavy fall maintenance season. Refineries are seen increasing their utilization rate by 0.3% to 90.8% of capacity.

Gasoline inventories are expected to have increased by 1.9 million bbl, while stocks of distillates, mostly diesel fuel, are seen to have gained 400,000 bbl last week.

At settlement, West Texas Intermediate (WTI) January futures on NYMEX dropped back to $68.61 bbl, down $2.71 or 3.6% on the session, with the international crude benchmark Brent contract for February falling $2.79 to $73.24 bbl. NYMEX RBOB January futures retreated $0.0634 gallon to $1.9797 gallon and NYMEX ULSD futures for January delivery nosedived $0.1013 to $2.5074 gallon.

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