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U.S. consumer prices increased solidly in February
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POLL-U.S. crude stockpiles seen up 1.2 million barrels
last week
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OPEC sees more growth in Chinese oil demand
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Coming up: API data on U.S. stockpiles
(Adds latest prices, quote)
By Scott DiSavino
NEW YORK, March 14 (Reuters) - Oil prices dropped over
4% to a three-month low on Tuesday after a U.S. inflation report
and the recent U.S. bank failures sparked fears of a fresh
financial crisis that could reduce future oil demand.
Brent futures fell $3.32, or 4.1%, to settle at
$77.45 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $3.47, or 4.6%, to settle at $71.33.
They were the lowest closes for both benchmarks since Dec. 9
and their biggest one-day percentage declines since early
January. In addition, both contracts fell into technically
oversold territory for the first time in weeks.
Shockwaves from Silicon Valley Bank's collapse triggered big
moves in bank shares as investors fretted over the financial
health of some lenders, in spite of assurances from U.S.
President Joe Biden and other global policymakers.
"The market is either anticipating a recession in the future
or it could be that one or more funds had to raise cash and
reduce the risk on their books because they are concerned about
liquidity after the bank failures," said Phil Flynn, an analyst
at Price Futures Group. He has not heard of any fund in trouble.
U.S. consumer prices increased solidly in February as
Americans faced persistently higher costs for rents and food,
posing a dilemma for the U.S. Federal Reserve whose fight
against inflation has been complicated by the collapse of two
regional banks.
"Crude prices are falling after a mostly in-line inflation
report sealed the deal for at least one more Fed rate hike,"
said Edward Moya, senior market analyst at data and analytics
firm OANDA.
Data showed the U.S. Consumer Price Index (CPI) rose 0.4% in
February from 0.5% in January. That slight slowdown in consumer
price growth prompted investors to price in a smaller rate hike
by the Fed in March.
The Fed is now seen raising its benchmark rate by just a
quarter of a percentage point next week, down from a previously
expected 50-basis points, and delivering another hike of the
same size in May. The Fed's next two-day meeting starts next
Tuesday.
"The Fed’s tightening work is not done just yet and the
chances are growing that they will send the economy into a mild
recession, and risks remain that it could be a severe one,"
OANDA's Moya said.
The U.S. central bank uses higher interest rates to curb
inflation. But those higher rates increase consumer borrowing
costs, which can slow the economy and reduce demand for oil.
Tuesday's crude price decline also came ahead of U.S. data
expected to show energy firms added about 1.2 million barrels of
oil to crude stockpiles during the week ended March 10. The American Petroleum Institute (API), an industry group,
will publish its inventory data at 4:30 p.m. EDT on Tuesday and
the U.S. Energy Information Administration at 10:30 a.m. on
Wednesday.
Limiting crude's price decline - at least earlier in the day
- was a monthly report from the Organization of the Petroleum
Exporting Countries (OPEC) projecting higher oil demand in
China, the world's biggest oil importer, in 2023.
Chinese consumers, unshackled from COVID-19 restrictions,
are returning to hotels, restaurants and some shops, but they
are choosy about what they buy, disappointing hopes for an
immediate post-pandemic splurge.
OPEC, however, left unchanged its forecast for world oil
demand to increase by 2.32 million barrels per day, or 2.3%, in
2023.
The International Energy Agency (IEA) will publish its
monthly report on Wednesday. (Additional reporting by Emily Chow in Singapore; Editing by
Mark Potter, Sharon Singleton and Emelia Sithole-Matarise)
