Oil futures: Prices retreat from highs on US inflation figures, China lockdowns

Quantum Commodity Intelligence - Crude oil futures Tuesday were slightly lower amid choppy trading, giving up earlier gains after US consumer prices rose in August and increasing the likelihood of a significant rate hike when the Fed meets next week.

Front-month November ICE Brent futures were trading at $93.34/b (2020 GMT), compared to the day's range of $91.05-$95.53/b and  Monday's settle of $94.00/b.  

At the same time, October NYMEX WTI was trading $87.50/b versus Monday's settle of $87.78/b, as prices recovered late in the session on reports the US would consider buying back oil for the SPR at $80/b.

Labor Department data showed US prices climbed 8.3% from a year earlier, a slight deceleration largely due to recent declines in gasoline prices, but still above expectations. The US Federal Reserve meets on 21 Sept.

Oil prices were higher earlier in the session as perceived tight supplies and the impact of the Russian price cap provided support, although Covid lockdowns in China continue to cast a major shadow on sentiment.

Nearly 300 million people are under some form of Covid restrictions, and mobility levels in affected cities have plummeted. However, traders say, so far, Chinese refiners have not slowed down Q4 crude import plans.

Swiss investment bank UBS cut its Brent forecast by $15/b, citing the lockdowns in China and resilient Russian exports, expecting ICE Brent futures to reach $110/b by the end of this year.  

"While we still hold a positive outlook on crude prices… Lockdowns in China and still-elevated Russian oil exports are likely to ease some of the tightness in the oil market in the near term." UBS said in a note.

The G7 agreed to introduce the price cap starting in early December, enforced via shipping and insurance, a move which Russia says would lead to the cancellation of supplies to countries applying the price cap.

The US has threatened to impose sanctions on buyers of Russian oil that rely on western shipping and financial services but evade the price cap, as the Biden administration vows to enforce the policy strictly once in place.

The apparent breakdown of negotiations on the Iranian nuclear deal has also supported crude oil this month, as US Secretary of State Antony Blinken said on Monday that Iran's response to a proposal for reviving the 2015 nuclear deal makes the prospects for an agreement in the near term unlikely.

In addition, the sharp fall in dollar values over the last few sessions has also helped the energy complex, as the Dollar Index dropped to a monthly low of below 108 points on Tuesday before soaring again after the inflation figures to above 109.50 points.

Meanwhile, US reserves of emergency stocks tumbled by 8.4 million barrels last week to a nearly four-decade low of 434.1 million barrels. At the same time, the Biden administration clarified last week that there are currently no plans for further SPR releases after the programme ends in October.

Staying in the US, retail gasoline prices have now fallen for 13 weeks in a row, while the GasBuddy website reported the most recent weekly data (Sun-Sat) revealed that US gasoline demand dropped 5.3% from the previous week and was 4.6% below the rolling four-week average as the driving season comes to a halt.