Oil gains following latest US inflation data

The front-month ICE Brent contract moved $1.42/bbl higher to settle at $70.61/bbl on Wednesday following signs of cooling inflation in the US.

PHOTO: An oil pumpjack with the US flag in the background. Getty Images

The inflation rate in the US, measured by the change in the Consumer Price Index (CPI), came in flat at 0.2% in August, matching July’s figures, the US Labor Department's Bureau of Labor Statistics (BLS) reported on Wednesday.

Market analysts had anticipated a rise in US CPI for August, following July’s increase. However, with the inflation rate holding steady at 0.2%, the oil market reacted positively to the stability.

“The good news? Today’s CPI report showed progress toward the Fed’s inflation goals,” SPI Asset Management’s managing partner Stephen Innes remarked. “Nothing here screams stop the rate cut music,” he added.

The CPI index declined to 2.5% on a year-on-year basis in August, down from 2.9% on a year-on-year basis in July. The inflation reading is gradually approaching the US Federal Reserve's 2% target, which raises expectations of an interest rate cut in September.

Lower interest rates in the US can boost demand, making dollar-denominated commodities like oil cheaper for holders of other currencies.

The US Fed is scheduled to discuss rate cuts on 17 and 18 September.

“With this CPI report in the bag, inflation expectations, thanks to the drop in oil prices, well in line with mandate the Fed might want to cut 50bps [50 basis points] while they still have the upper hand,” Innes further said.

By Aparupa Mazumder

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