Oil prices tread water amid China caution, CPI anticipation

Investing.com-- Oil prices moved little in Asian trade on Tuesday, as markets remained on edge following more signs of economic weakness in top importer China, while caution set in before key inflation readings from the U.S. and India. 

Data over the weekend showed that China slipped further into disinflation in November, raising more concerns over slowing economic growth in the country. The reading also came just a few days after data showing a pronounced drop in Chinese oil imports, which showed that slowing growth was now chipping away at the country’s appetite for crude. 

Oil prices had tumbled to near six-month lows in the wake of the Chinese import data, while also marking their worst series of losses in five years. But they saw some strength this week amid bargain buying, while traders were also encouraged by U.S. plans to buy more oil to refill the Strategic Petroleum Reserve. 

Brent oil futures expiring February  were flat at $76.03 a barrel, while West Texas Intermediate crude futures steadied at $71.59 a barrel by 20:04 ET (01:04 GMT). 

Inflation readings in focus before central bank bonanza 

Markets were now awaiting key inflation readings from the U.S. and India, due later in the day. 

U.S. consumer price index (CPI) inflation is expected to have declined further in November, albeit slightly, and is still expected to remain above the Federal Reserve’s 2% annual target.

The reading also comes just a day before an interest rate decision from the central bank, which is widely expected to keep rates on hold. 

But Tuesday’s inflation reading is likely to factor into the Fed’s outlook on rates in 2024, amid growing uncertainty over whether the central bank will begin trimming rates early in the year. 

Fears of higher-for-longer interest rates have been a key weight on oil prices, especially as traders fear restrictive economic conditions will eat into fuel demand. U.S. fuel demand was seen declining in recent weeks, although the drop was also due to the winter season.

Indian CPI inflation is also due later on Tuesday, and comes just a few days after the Reserve Bank of India warned of a potential spike in inflation due to higher food prices.

The country is among the biggest oil importers in the world, and is expected to see increasing crude demand in the coming years, especially if the economy keeps growing past its global peers. 

But the near-term outlook for oil remains dour, especially with global monetary conditions set to remain restrictive. Underwhelming production cuts from the Organization of Petroleum Exporting Countries and allies (OPEC+) also herald less tight markets in early-2024 than initially expected. 

Beyond the Fed, interest rate decisions from the European Central Bank, Bank of England and Swiss National Bank are also on tap this week, with all three set to signal higher for longer rates.