This post was originally published on this site
Oil futures ticked lower early Monday, edging down after last week’s sizable bounce as investors weigh the outlook for global demand and await U.S. inflation data.
Price action
-
West Texas Intermediate crude for March delivery
CL00,
-0.85% CLH23,
-0.85%
rose 15 cents, or 0.2%, to $86.24 a barrel on the New York Mercantile Exchange. -
April Brent crude
BRN00,
-0.81% BRNJ23,
-0.81% ,
the global benchmark, was off 14 cents, or 0.2%, at $86.25 a barrel on ICE Futures Europe. -
March gasoline
RBH23,
-0.79%
fell 0.2% to $2.498 a gallon, while March heating oil
HOH23,
-0.20%
rose 0.3% to $2.873 a gallon. -
March natural gas
NGH23,
-3.14%
jumped 2.4% to $2.575 per million British thermal units.
Market drivers
Brent and WTI rallied Friday, lifting both grades to weekly gains of more than 8%, after Russia said it would cut production by 500,000 barrels a day in March. WTI and Brent are both down for the year and over the last 12 months.
The physical market for crude remains soft, analysts said.
North Sea and West African, or WAF, Atlantic Basin crudes are the marginal barrels in the market, said Michael Tran, commodity and digital intelligence strategist at RBC Capital Markets, in a note. While there were signs of a pickup in WAF loadings for February last week, major North Sea streams remain soft, leaving the overall picture mixed.
“This means that either, China’s post COVID ramp has not been meaningful enough to tighten the physical market (yet), or demand elsewhere remains uninspiring,” Trans aid. “Either way, there remains slack in the physical crude system, for now.”
While a spate of temporary supply outages, including the temporary closure of a major Turkish port after last week’s devastating earthquake, has helped to tighten physical balances, the market needs to see “true physical tightening” before futures market can rally, Tran said. “We have all learned over the years that markets rather reward demand strength over supply tightness.”
Investors across markets are awaiting the Tuesday reading of the January U.S. consumer-price index for clues to the Federal Reserve’s interest-rate path.
Economists polled by The Wall Street Journal forecast a 0.4% increase in the January CPI, which would slow the year-over-year rate to 6.2% from 6.5% in December. Year-over-year CPI peaked at a roughly 40-year high of 9.1% last summer. Core CPI, which excludes volatile food and energy prices, is expected to rise 0.3% in January, with the year-over-year rate at 5.4% versus 5.7% in December.
Treasury yields rebounded last week as investors moved expectations for rates closer to the Fed’s forecasts for a peak rate above 5% and scaled back expectations for a rate cut by year-end. The Fed has maintained that rates are unlikely to fall in 2023.
