Oil steadies near $96 amid increasing inflation and decreasing demand

(Bloomberg) — Oil ended the day little changed after a volatile session in which the latest U.S. inflation report and data showing high prices hitting U.S. fuel demand roiled prices.  

West Texas Intermediate crude futures eked out a small gain to settle above $96 a barrel. Government figures showing the highest inflation in decades and an unseasonable drop in gasoline demand capped market strength. US gasoline demand tumbled last week to 8.06 million barrels a day, lower than same week in 2020 and the lowest seasonally since 1996, according to the Energy Information Administration. 

U.S. consumer prices jumped in June by 9.1% year-on-year, the largest gain in over four decades. Market participants fear the report will keep the Federal Reserve geared for another big interest-rate hike and lead to possible economic slowdown. 

“The oil market might be tight, but high energy costs are clearly leading to crude demand destruction,” said Ed Moya, senior market analyst at Oanda Corp. 

Crude prices pose a high risk to global economic recovery, with signs that fuel costs are starting to “take their toll” on demand growth, the International Energy Agency said in a report. Increases in the energy sector accounted for nearly half of all consumer price spikes in the US June inflation report, according to Labor Department data released Wednesday.

Concerns over an economic slowdown have overshadowed tight physical crude markets. OPEC’s first outlook for 2023 suggests that there will be no relief for squeezed consumers, with more oil needed from the group even though most members are already pumping flat out.

“The physical market is still screaming that it’s very, very tight,” said Damien Courvalin, head of energy research at Goldman Sachs in a Bloomberg TV interview.

Meanwhile, US President Joe Biden has repeatedly called on OPEC to pump more and is scheduled to visit Saudi Arabia this week during a tour of the Middle East. The kingdom along with the United Arab Emirates are the only cartel members with significant volumes of unused production capacity.

China’s exports expanded at a faster pace than expected in June as Covid disruptions continued to ease, though concerns about virus outbreaks remain. Some residents in Shanghai have been urged to stockpile food and medicines as the fear of returning to lockdown hangs over the city.