Oil prices today: US inflation worries, sudden rise in inventories sink oil

Brent crude was last seen down $1.01, or 1.3 percent, at $76.43 a barrel, while US West Texas Intermediate (WTI) crude fell 99 cents, or 1.3 percent, to $72.72. Both the benchmarks had fallen around 2.5 per cent in the earlier session after two days of gains.

If inflation remains very high, it will mean more rate hikes and more hikes will put pressure on global oil demand as they will push the US dollar higher making oil more expensive for other currency markets.

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Surprising increase in US crude oil reserves

US crude inventories rose by nearly 3.6 million barrels in the week ending May 5, while gasoline stockpiles rose by 399,000 barrels, according to the American Petroleum Institute. The data defied expectations of eight analysts polled by news agency Reuters for a decline of 900,000 barrels of crude oil and a drop of 1.2 million barrels in petrol stocks. US government data on oil reserves is due on May 10.

Lower crude imports and softer export growth in China in April as well as surprising US inventories raised concerns about global oil demand.

In addition, the Biden administration plans to begin buying oil to replenish the Strategic Petroleum Reserve (SPR), which helped cover speculative short positions, Robert Yoger, executive director of energy futures at Mizuho, ​​told Reuters. told.

Energy Secretary Jennifer Granholm said the administration could start buying crude for the SPR later this year, after President Joe Biden last year directed the biggest-ever sale from the stockpile.

This was effectively a repeat of previous statements that were not followed by any action, but they also briefly raised prices – however, in the latest case prices fell.

The Energy Information Administration (EIA) forecast US crude output would rise 5.1 percent to 12.53 million barrels per day this year, but slashed its production forecast for this year and next from previous forecasts.

“We expect a seasonal increase in oil consumption and a decline in OPEC crude production to exert some downward pressure on crude prices in the coming months,” the Energy Information Administration said in its short-term energy outlook. It cut its forecast for Brent and WTI prices by more than 7 percent to $78.65 and $73.62 a barrel, respectively.

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Current Major Triggers for the Oil Markets

The market awaits the US Consumer Price Index (CPI) data for April on Wednesday. New York Fed President John Williams has said the central bank will raise rates again if inflation remains too high, even though the Federal Reserve has dropped guidance about the need for future hikes.

The market is also awaiting the monthly oil report of the Organization of the Petroleum Exporting Countries (OPEC) on May 11 to know whether the group and its allies will need to cut production again to prop up prices. .

OPEC and its allies, known as OPEC+, agreed last month to cut production by 1.16 million barrels per day (bpd) from May until the end of the year. OPEC+ has said that their meeting in early June Will be in person in Vienna instead of a virtual one. Experts say this indicates that the cartel is looking more active in supporting oil prices and that further production cuts may follow.

Meanwhile, markets were also monitoring comments from US President Biden and top Republican lawmakers on raising the $31.4 trillion US debt limit amid fears of an unprecedented default if Congress does not act in the next three weeks.