Oil futures: Crude tumbles as US inflation figures add to economic woes

Quantum Commodity Intelligence - Crude oil futures Friday tumbled during early US trading hours after the latest data showed US consumer price growth resumed its rapid rise in May, adding urgency to the Federal Reserve's plans to tighten monetary policy.

Front-month August ICE Brent futures were trading at $120.93/b (1645 GMT), compared to Thursday's settle of $123.07/b and Friday's range of $119.81-$124.33/b.

At the same time, July NYMEX WTI was trading $119.44/b, versus Thursday's settle of $121.51/b.

US consumer inflation reached an 8.6% annual rate in May, its highest level in more than four decades, as surging energy and food prices pushed prices higher, which triggered a fall in equities and a broader risk-off event. 

Both benchmarks were on course for gains of over 2% since last Friday's close but are now heading for gains of around 1%.

Before the inflation figures, oil futures were already slightly lower after a choppy session with China reintroducing fresh Covid restrictions.

"Crude oil edged lower amid concerns in China that renewed lockdowns will dent the recovery in demand," said ANZ commodity strategist Daniel Hynes, but further noted: "Nevertheless, this doesn't take away from the bullish outlook amidst supply disruptions and strong demand elsewhere."

Analysts now say that China will struggle to meet its economic growth target of around 5.5% in 2022 as virus lockdowns force business shutdowns and snarl supply chains.

President Xi Jinping has reiterated China's commitment to zero-Covid, declaring "persistence is victory", as Shanghai and Beijing went back on high alert, including new restrictions in both cities.

This week, the World Bank sharply slashed its 2022 growth forecast for China to 4.3%, warning that Covid-19 disruptions could further slow recovery.

But in broader terms, most analysts still see potential upside for oil markets as supplies struggle to meet robust global demand.  

"The oil market remains very tight, but the short-term crude demand outlook took a bit of a hit," said Stephen Innes, managing partner SPI Asset Management. 

"Whatever weakness emerges for crude will likely be short-lived as this will be one of the busiest (US) driving seasons ever. The pent-up demand for vacation and travel will be front-loaded and demand for crude will be robust," added Innes.