HOUSTON: Oil prices fell 2 percent on Tuesday, reversing earlier gains as US consumer prices unexpectedly rose in August, giving cover for the US Federal Reserve to deliver another hefty interest rate increase next week.
Brent futures for November delivery fell $2.05, or 2.2 percent, to $91.95 a barrel by 11:38 a.m. ET (1638 GMT). US crude was down $1.73, or 2 percent, to $86.05 per barrel.
The consumer price index gained 0.1 percent last month after being unchanged in July, the US Labor Department said. Economists polled by Reuters had forecast a 0.1 percent fall.
Fed officials are set to meet next Tuesday and Wednesday, with inflation way above the US central bank’s 2 percent target.
“The Fed may have to raise rates quicker than expected which could cause a ‘risk back off’ sentiment in crude and further strength to the dollar,” said Dennis Kissler, senior vice president of trading at BOK Financial.
Oil is generally priced in US dollars, so a stronger greenback makes the commodity more expensive to holders of other currencies.
Renewed COVID-19 curbs China, the world’s second-largest oil consumer, also weighed on crude prices.
The number of trips taken over China’s three-day Mid-Autumn Festival holiday shrank, with tourism revenue also falling, official data showed, as COVID-linked restrictions discouraged people from traveling.
Both contracts rose by more than $1.50 a barrel earlier in the session, supported by concerns over tighter inventories.
“The oil market’s structural outlook remains one of tightness, but for now, this is offset by cyclical demand headwinds,” Morgan Stanley said in a note.
The US’ strategic petroleum reserve fell 8.4 million barrels to 434.1 million barrels last week, the lowest since October 1984, according to government data on Monday.
US commercial oil stocks were forecast to have risen 800,000 barrels during the same week, analysts forecast in a Reuters poll.
The Organization of the Petroleum Exporting Countries on Tuesday stuck to its forecasts for robust global oil demand growth in 2022 and 2023, citing signs that major economies were faring better than expected despite headwinds such as surging inflation.