Oil Price Fundamental Daily Forecast – Hot CPI Means More Aggressive Rate Hikes Could Hit Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday shortly after a key consumer inflation report came in hotter than expected, signaling that the Federal Reserve will likely continue with aggressive interest rate hikes.

The U.S. Consumer Price Index (CPI) rose 0.4% in September, above the 0.3% expected by economists according to Dow Jones. Core CPI, which strips out food and energy, was up 0.6% month over month, also higher than expected.

At 13:19 GMT, December WTI crude oil futures are trading $84.95, down $1.11 or -1.29%. December Brent crude oil is at $91.52, down $0.93 or -1.01%. On Wednesday, the United States Oil Fund ETF (USO) settled at $70.90, down $0.85 or -1.19%.

Ahead of the report, the crude oil market was flat as traders continued to weigh last week’s decision to cut supplies by OPEC and its allies against a warning from the International Energy Agency (IEA) that those cuts may push the global economy into recession.

US Moving Closer to Recession

Today’s hotter-than-expected CPI reading likely cements the chances of another 75-basis-point rate hike by the Fed at its November 1-2 policy meeting. With some investors fearing rates are being hiked too quickly and the central bank is dragging the U.S. economy into a recession, some crude oil experts are already anticipating lower demand for energy products.

OPEC Cuts 2022, 2023 Oil Demand Outlook

OPEC on Wednesday cut its 2022 forecast for growth in world oil demand for a fourth time since April and also trimmed next year’s figure, citing slowing economies, the resurgence of China’s COVID-19 containment measures and high inflation, Reuters reported.

Oil demand will increase by 2.64 million barrels per day (bpd) or 2.7% in 2022, the Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report, down 460,000 bpd from the previous forecast.

OPEC+ Oil Production Cuts Could Tip World into Recession:  IEA

A decision by the OPEC+ oil producer group last week to rein in output has driven up prices and could push the global economy into recession, the International Energy Agency said on Thursday.

“The relentless deterioration of the economy and higher prices sparked by an OPEC+ plan to cut supply are slowing world oil demand,” the Paris-based agency, which includes the United States and other top consumer countries, said.

“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession,” it added in its monthly oil report.

Daily Forecast

Crude oil’s bearish reaction to the hotter-than-expected CPI data indicates how difficult it is going to be to build a sustainable rally on the back of very high inflation and the expectation that the Federal Reserve is going to be more hawkish than ever.