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Oil rises on dovish CPI, but recession fears spell weekly losses

Published 11/11/2022, 02:34 pm
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By Ambar Warrick

Investing.com-- Oil prices rose on Friday after softer-than-expected U.S. inflation data ramped up hopes of smaller interest rate hikes by the Federal Reserve, although concerns over slowing economic growth and a COVID spike in China still saw crude trade negative for the week.

Crude markets tracked a broader rally in risk-driven assets after U.S. CPI inflation slowed more than expected in October, showing that a series of sharp interest rate hikes by the Fed this year were bearing fruit.

The data saw investors nearly unanimously agreeing that the central bank will raise interest rates at a slower clip in the coming months, taking some pressure off the economy. The move also dented the dollar, which is beneficial to oil prices.

Brent oil futures rose 0.3% to $93.96 a barrel in early Asian trade, while West Texas Intermediate crude futures rose 0.4% to $86.78 a barrel. Both contracts clocked strong gains on Thursday after the inflation data, but were still set to end the week about 5% to 6% lower.

Also adding to optimism, Hong Kong relaxed some COVID curbs for inbound travelers, driving speculation that China could follow with a similar move. But rising COVID cases in China, which is grappling with its worst outbreak since May, curbed enthusiasm over such a move happening in the near-term.

Concerns over sluggish Chinese demand were the biggest weights on crude prices this week, as local authorities dismissed speculation that the country plans to scale back its strict zero-COVID policy.

China is the world’s largest crude importer, and a demand slowdown in the country this year, due to its disruptive anti-COVID policies, weighed heavily on crude prices.

Concerns over a global economic slowdown, due to rising inflation and interest rates, also hampered sentiment toward oil markets.

While U.S. inflation eased more than expected in October, it still ran well above the Fed’s annual target of 2%. This, coupled with interest rates trending at their highest level since 2008, also pose a potential risk to economic growth, which could stymie oil demand.

Third-quarter GDP data from the UK, due later today, is also expected to shine more light on the state of developed economies.

On the other hand, tightening oil supply, due to production cuts and sanctions on Russia, may benefit crude prices in the medium-term.

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