Oil prices muted as markets weigh SPR sale, inflation data

By Ambar Warrick

Investing.com -- Oil prices extended losses on Tuesday as markets gauged the potential impact of additional crude sales from the U.S. Strategic Petroleum Reserve, while caution persisted ahead of a key reading on U.S. inflation due later in the day.

The Biden Administration said on Monday that it will sell 26 million barrels of crude from the SPR as part of a release mandated by Congress. The sale comes after the Department of Energy released a record 180M barrels from the reserve in 2022 to combat rising fuel prices.

The SPR currently stands at 372M barrels - its lowest level since 1983. The latest release is due for bidding on February 28 and is set for delivery between April and June.

But the additional sales also come at a time when U.S. crude markets are flush with supply, while demand has weakened amid pressure on economic activity from high interest rates and inflation.

Brent oil futures were unchanged at $85.78 a barrel, while West Texas Intermediate crude futures fell slightly to $79.10 a barrel by 20:32 ET (01:32 GMT). Both contracts were nursing small losses from Monday, as markets largely looked past a recent move by Russia to cut 5% of its total oil production.

Focus is now squarely on U.S. consumer price index inflation data due later in the day. While the reading is expected to show that inflation eased further in January from the prior month, price pressures are still expected to remain relatively elevated.

Traders were also cautious over any surprises to the upside, which could feed into the Fed’s hawkish rhetoric and keep interest rates elevated for longer.

U.S. economic growth is expected to slow in the coming months as the effects of 2022’s sharp interest rate hikes are felt, which is in turn expected to weigh on crude demand. Rate hikes are also expected to boost the dollar, which makes crude more expensive for international buyers.

On the other hand, oil bulls have held out for a demand recovery in China, the world’s largest crude importer. The country is expected to drive global crude demand to record highs this year after it relaxed most anti-COVID restrictions, paving the way for an economic recovery.

But recent economic readings from China showed a staggered recovery in activity, which could indicate a longer-than-expected road to a full economic rebound.