Crude oil lower ahead of U.S. CPI; retreating after last week's gains

By Peter Nurse   

Investing.com -- Oil prices fell Monday, handing back some of the previous week’s outsized gains, as attention returned to the short-term demand outlook ahead of key U.S. inflation data.

By 09:15 ET (14:15 GMT), U.S. crude futures traded 0.7% lower at $79.14 a barrel, while the Brent contract fell 0.8% to $85.69 a barrel. 

Attention is focused firmly on Tuesday’s release of the latest U.S. CPI data, as this number could well provide further clues as to how high the Fed may need to raise rates this year.

Inflation levels are expected to remain elevated, ensuring that the Federal Reserve keeps lifting interest rates, to the detriment of the U.S. economy, the largest consumer of crude in the world. 

With this in mind, traders have taken a cautious stance to trading Monday. 

Also weighing was the resumption of Azerbaijani oil exports at Turkey's Ceyhan terminal over the weekend after the earthquake earlier this month in the region had disrupted supply.

That said, these losses are minor when compared to the gains of over 8% seen last week, particularly after Russia announced plans to cut March oil production by 500,000 barrels a day from March, the equivalent of about 5% of January’s output. 

“While there is an element within the market that believes that this is Russia weaponizing energy,” said analysts at ING, in a note, “we feel that it is more likely that Russia is simply struggling to find buyers for its oil, particularly after the EU ban on Russian refined products came into force earlier this month.”

Data supplied by Bloomberg seemed to back up this theory, as aggregate flows of Russian crude fell by 562,000 barrels a day, or 16%, in the seven days to Feb. 10, dropping to a six-week low.

“These cuts do not change our view on the market, given that we were already assuming that Russia would have to reduce supply as a result of the EU ban on oil and refined products,” ING added.

This news will likely put the spotlight on the output levels from the Organization of Petroleum Exporting Countries, although the early indications suggest that Russia’s partners in the oil coalition won’t boost production to fill in for the reduction announced by Moscow. 

Saudi Energy Minister Prince Abdulaziz bin Salman, the de facto leader of the OPEC+ group, which includes Russia, said last week that the bar for any intervention will be very high: “I will believe it when I see it and then take action.”

OPEC will release its monthly oil market report on Tuesday, and this will include the latest outlook on the market as well as production numbers for January.