Crude values rebound as US inflation shows signs of easing

Front-month ICE Brent has jumped by $3.82/bbl on the day, to $96.06/bbl at 09.00 GMT. But the futures contract is on track for a 2% drop on the week.

PHOTO: US Consumer Price Index (CPI) in October reached 7.7%, down from 8.2% in September. Getty Images

Upward pressure:

The US consumer price index (CPI) rose by 7.7% in October, which was lower than the 8.2% in September and well below market expectations of 8%.

The cooldown in the inflation rate helped to boost equity markets in the US and also Brent values. Crude oil has gained "as energy prices have been positively correlated with inflation and rates," CMC market analyst Tina Teng says.

A slowdown in US inflation could allow the US Federal Reserve to make less aggressive interest rate hikes going forward. Fed policymakers have reiterated that various tools and measures will be used to curb inflation.

Crude values have been further boosted by Chinese leaders hinting that they could take a more targeted approach to Covid-19. The statements came in response to public frustration over China's zero-Covid policy. Despite assurances, the local public has mostly stayed away from travel as they fear being caught up in quarantine rules and restrictions, ANZ commodities strategist Daniel Hynes says.

The Chinese government is moving towards loosening Covid-19 restrictions sooner than later, Saxo Bank says. Though Brent has been pivoting around $95/bbl this week and possibly in the near term, the risk of higher prices still remains, it adds.

Downward pressure:

Several market participants doubt whether the Chinese government will make any drastic changes to its zero-Covid policy. China’s daily infection rate has surpassed the 10,000 mark in the past day - the first time since April. Although the majority of these cases are asymptomatic, authorities have still opted for stringent restrictions.

Major Chinese cities such as Guangzhou are still under restrictions and mass testing is underway.

“With fresh lockdowns and restrictions still being implemented and the policy receiving support from President Xi Jinping at the Party Congress in late October, it's hard to see authorities deviating from the policy in the short term," Commonwealth Bank commodities analyst Vivek Dhar said in a note.

By Nithin Chandran

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