Crude oil futures pare gains as investors look to Nov inflation report

KATHMANDU: Crude oil futures were lower in mid-morning trade in Asia Dec. 10, paring gains made earlier this week as investors took caution ahead of key US inflation data to be released later in the day and demand risks from the omicron variant.

The ICE February Brent futures contract was down 5 cents/b (0.07%) from the previous close at $74.37/b, while the NYMEX January light sweet crude contract fell 4 cents/b (0.06%) at $70.90/b.

“Crude prices and US stocks appear to be in lock-step ahead of Friday’s inflation data. Omicron uncertainty and concerns of weakening crude demand snapped a three-day rally in oil prices,” OANDA’s senior market analyst Edward Moya said in a note Dec. 10.

The US Labor Department is set to release later Dec. 10 the inflation print for November.

Coming a month after US core inflation for October hit a 30-year high, expectations are high that this month’s report will notch similar records and further heighten the case for the US Federal Reserve to tighten monetary policy faster than planned.

“The tapering of asset purchases from the Fed has taken greater focus lately, with the hawkish change in stance among Fed officials suggesting that it may come sooner rather than later, and the CPI data may potentially prompt an accelerated pace,” IG market strategist Yeap Jun Rong said.

A strong print is expected to send the US dollar higher, making it more expensive for holders of other currencies to purchase dollar-denominated oil.

As of 0225 GMT, the US dollar index was down 0.08% at 96.19.

While crude prices were still on track to end the week higher, analysts nonetheless noted weakness in the prompt time spreads for both benchmarks, potentially signaling weakening supply-demand fundamentals in the months ahead.

“The prompt Brent spread is at its weakest level since February and appears to reflect expectations for a loosening in the oil balance in the coming months. Similarly, the WTI time spread has also come under pressure, trading down to its lowest levels since late 2020,” ING analysts Warren Patterson and Wenyu Yao said.

Demand risks from the omicron variant is also present. Europe remains locked in a battle with its fourth, or for some fifth, wave of COVID-19 infections, with some countries having announced fresh restrictions in recent days.

IG’s Yeap pointed to the $72.65/b mark for Brent crude, where the Fibonacci 61.8% retracement level lies, as one to watch in the event of a further drop in crude prices.

“A rebound from that level may still point towards a higher low, potentially aiding to drive a near-term uptrend,” he said. S&Pglobal