Oil prices increased on Friday as softer-than-expected U.S. inflation data raised expectations of more gradual Federal Reserve interest rate increases. Still, worries about slowing economic growth and a rise in COVID in China kept oil trade negative for the week.
U.S. CPI inflation slowed more than forecast in October. This indicated that the Fed’s swift interest rate hikes this year were paying off. Crude markets followed a larger rally in risk-driven assets. Investors mostly concurred in light of the data that the central bank will increase interest rates in the coming months at a slower rate, relieving some of the strain on the economy. The action also weakened the currency, which helped oil prices.
What To Expect Next?
West Texas Intermediate crude futures increased by 0.4% to $86.78 per barrel. Moreover, Brent oil futures increased by 0.3% to $93.96 per barrel. After the inflation figures on Thursday, both futures saw significant increases. However, they should still close the week between 5% and 6% down.
Additionally, boosting confidence, Hong Kong loosened certain COVID restrictions for incoming tourists, sparking rumors that China would follow suit. However, growing COVID cases in China, which is now dealing with its largest epidemic since May, have dampened hopes that such a change will take place soon.
This week, the strongest pressure on oil prices came from worries about weak Chinese demand, as local authorities shot down rumors that the nation intended to relax its tight zero-COVID policy. Due to its disruptive anti-COVID measures, China, the largest crude importer in the world, had a decrease in demand this year, which significantly impacted oil prices. Sentiment toward the oil markets was further affected by worries about a worldwide economic downturn brought on by increasing prices and interest rates.
Even though U.S. inflation decreased more than anticipated in October, it was still much above the Fed’s 2% annual objective. This poses a significant danger to economic development, which might hinder oil consumption and interest rates from running at their highest level since 2008.