HOUSTON: Oil prices fell about 1% on Tuesday in choppy trading, reversing earlier gains as US consumer prices unexpectedly rose in August, giving cover for the US Federal Reserve to deliver another hefty interest rate increase next week.
Brent futures for November delivery fell 78 cents to $93.22 a barrel, a 0.8% loss, by 1:49 p.m. ET (17:49 GMT). US crude fell 54 cents, or 0.6%, to $87.24 per barrel.
The consumer price index gained 0.1% last month after being unchanged in July, the US Labor Department said. Economists polled by Reuters had forecast a 0.1% fall.
Fed officials are set to meet next Tuesday and Wednesday, with inflation way above the US central bank’s 2% target.
“The Fed may have to raise rates quicker than expected which could cause a ‘risk back off’ sentiment in crude and further strength to the dollar,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Oil is generally priced in US dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.
Renewed COVID-19 curbs in China, the world’s second-largest oil consumer, also weighed on crude prices.
The number of trips taken over China’s three-day Mid-Autumn Festival holiday shrank, with tourism revenue also falling, official data showed, as COVID-linked restrictions discouraged people from travelling.
Both contracts rose by more than $1.50 a barrel earlier in the session, supported by concerns over tighter inventories.
“The oil market’s structural outlook remains one of tightness, but for now, this is offset by cyclical demand headwinds,” Morgan Stanley said in a note.
The US Strategic Petroleum Reserve (SPR) fell 8.4 million barrels to 434.1 million barrels last week, the lowest since October 1984, according to government data on Monday.
The United States may begin refilling the SPR when crude prices fall below $80 per barrel, a Bloomberg reporter said on Twitter.
US commercial oil stocks were forecast to have risen 800,000 barrels last week, analysts forecast in a Reuters poll. Weekly industry inventory data from American Petroleum Institute (API) is due at 4:30 p.m. EDT (2030 GMT), followed by the government’s report at 10:30 a.m. EDT on Wednesday.
“We remain constructive on oil prices despite intensifying headwinds to demand, as the supply side remains supportive with slower-than-expected US output growth and a proactive OPEC+,” Amarpreet Singh, an energy analyst at Barclays, wrote a note.
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