Crude Oil Prices Up as US Inflation Data Eases Rate Hike Concerns

Highlights

• US inflation data suggests slowing price increases
• Kurdistan output reduction tightens supply
• OPEC expected to maintain current output agreement

Overview

U.S. West Texas Intermediate crude oil prices are higher on Friday amid tightening supplies in certain regions and indications from U.S. inflation data that the rate of price increases was slowing down.

If the current levels hold, oil prices will record their second straight week of gains.

At 14:45 GMT, June WTI crude oil is trading $75.51, up $1.02 or +1.37%. The United States Oil Fund ETF (USO) is at $66.22, up $0.90 or +1.38%.

Oil Benchmarks Reach Lowest Point Since 2021 Amidst Bank Failures

However, Brent and WTI are also expected to record monthly declines of 5% and 2% respectively, which are their steepest since November.

The benchmarks reached their lowest point since 2021 on March 20 following large bank failures, and while they have since recovered some of the losses, they are still trading well below the levels at the beginning of March.

The prolonged economic scarring of the past month is likely to slow the economy and may even cause a recession. Therefore, lower interest rate expectations might not be enough to support oil prices in the short term.

Inflation Decelerates in February, Boosting Oil Prices as Investors Anticipate Fed’s Relaxed Monetary Policy

The U.S. Personal Consumption Expenditure (PCE) index – the primary measure of inflation favored by the Federal Reserve – showed a monthly increase of 0.3% in February, which is a slower pace compared to January’s 0.6% rise and the anticipated 0.4% increase in a Reuters survey.

The deceleration of inflation is viewed as a positive sign for oil prices since it suggests that the Federal Reserve may not take aggressive measures to raise interest rates, resulting in higher demand from investors for commodities and equities.

Oil Prices Rise Due to Reduced Output in Kurdistan Region Following Export Pipeline Halt

The closure or curtailment of oil production at multiple oilfields in the semi-autonomous Kurdistan area of northern Iraq following the stoppage of the northern export pipeline has propelled oil prices upwards.

OPEC to Maintain Current Output Agreement Despite Recent Oil Price Increase: Reuters Survey

OPEC’s oil production decreased to 28.90 million barrels per day (bpd) this month, as indicated by a Reuters survey, marking a decrease of 70,000 bpd compared to February and more than 700,000 bpd lower than their output level in September.

Despite the recent uptick in oil prices, sources suggest that the Organization of the Petroleum Exporting Countries and its allies, led by Russia, will keep their current output agreement unchanged at a meeting scheduled for Monday.

Short-Term Outlook

The crude oil market seems somewhat bullish as US West Texas Intermediate crude oil prices have increased and are expected to record their second straight week of gains.

Reduction in oil output in the Kurdistan region and OPEC’s decrease in oil production suggest a tightening supply.

However, Brent and WTI are expected to record their steepest monthly declines since November, and they are still trading below the levels at the beginning of March.

The prolonged economic scarring may affect the economy, and lower interest rate expectations may not be enough to support oil prices in the short term.