(Bloomberg) -- Oil reversed early gains after hot inflation data led traders to anticipate that central bankers are likely to stay hawkish for the coming months.
West Texas Intermediate dropped below $76.50, having earlier reached $77.74 after China and India released strong manufacturing and oil-sales data.
Crude has fallen this year as the prospect of tighter US monetary policy and rising inventories have so far outweighed optimism that Chinese demand will strengthen following the end of coronavirus lockdowns. Russian flows are also in focus as western sanctions and bans linked to the war in Ukraine tighten. Although Moscow has largely managed to keep exports going by finding new buyers, there are signs of friction in markets including India, a key outlet for Russian crude.
While Chinese oil demand is likely to rebound along with the economy, there’s the concern that high rates in the US will make the dollar even stronger, which would weigh on crude prices, said Edward Bell, senior director of market economics at Emirates NBD Bank PJSC.
Russia said it planned to cut supply by 500,000 barrels a day from this month, presenting that decision as retaliation against sanctions. The European Union, however, said Moscow had been forced to cut back, while RBC Capital Markets said the decision may reflect difficulty maintaining output from challenging fields.
“The big question for oil markets in coming months will be the extent that Russia’s oil and refined-product exports are upended,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “Markets have generally overestimated the extent of Russian oil supply disruptions since the Ukraine war began.”
In the US, commercial stockpiles have expanded significantly in recent months, signaling ample crude supply in the world’s largest economy. On Tuesday, the American Petroleum Institute reported US inventories rose by 6.2 million barrels last week, according to people familiar with the figures. An official breakdown comes later on Wednesday.