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Better-Than-Expected Inflation Data Sparks Hope For Oil Markets

U.S. West Texas Intermediate crude oil futures closed higher on Thursday after recapturing earlier losses. The catalyst behind the price reversal was milder-than-expected U.S. consumer inflation data. The economic news offset worries over renewed COVID-curbs in China and their potential effect on fuel demand, triggering an intraday short-covering rally.

Crude Oil Rises after Light Consumer Inflation Report

October’s consumer price index rose just 0.4% for the month and 7.7% from a year ago, its lowest annual increase since January and a slowdown from the 8.2% annual pace in the prior month. Economists were expecting increases of 0.6% and 7.9%, according to Dow Jones.

Excluding volatile food and energy costs, the core CPI increased 0.3% for the month and 6.3% on an annual basis, also less than expected.

How Does Lower Inflation Affect Crude Oil Prices?

Treasury yields plunged after the CPI report, with the benchmark 10-year Treasury yield falling roughly 30 basis points to 3.81% as traders bet the Federal Reserve would slow its aggressive tightening campaign that’s weighed on markets all year.

The drop in yields weakened the U.S. Dollar, helping to drive up demand for dollar-denominated crude oil. With today’s CPI number coming down, the market is now betting pretty clearly that they believe the interest rate hikes are coming close to an end.

This likely means more pressure on the greenback and perhaps more foreign…

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EXXON Mobil -0.35
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