Oil dives as weak US inflation data dashes hopes for interest rate cuts

By Sibel Morrow

Oil prices continued their decline on Wednesday as weaker-than-expected economic data in the US, the world’s largest oil consumer, spooked investors ahead of the US Fed meeting while a more-than-expected drop in the country’s crude oil stockpiles limited further losses.

International benchmark crude Brent traded at $72.66 per barrel at 10.55 a.m. local time (0755 GMT), a 0.79% decrease from the closing price of $73.24 a barrel in the previous trading session on Tuesday.

The American benchmark, West Texas Intermediate (WTI), traded at the same time at $68.05 per barrel, down 0.87% from Tuesday's close of $68.61 per barrel.

Both benchmarks have recorded steep declines after weaker-than-anticipated US inflation data signaled that the Fed may keep the interest rates on hold longer than expected.

US core prices increased by 0.3% in November, according to data released on Tuesday, the day before the Fed is scheduled to vote on borrowing costs. The year-over-year core rate was unchanged at 4%.

Investors will be monitoring Fed Chairman Jerome Powell's remarks following today's meeting for hints about the bank's future monetary policy.

On Tuesday, US Treasury Secretary Janet Yellen said she believes inflation is coming down "meaningfully," and with inflation expectations under control, it should not be particularly difficult to finish the "last mile" of the job of easing price pressures.

An estimated decline in US crude oil inventories limited further downward price movements, reflecting strong demand conditions in the world’s largest oil-consuming country.

The American Petroleum Institute (API) late Tuesday announced an estimated increase of nearly 600,000 barrels in US crude oil inventories, against the market expectation of a decline of 2.6 million barrels.

Prices may rebound if the US Energy Information Administration (EIA) confirms the stock draw when it releases actual data on oil stocks later on Wednesday.