Inflation concerns trigger a decline of over 3% in U.S. crude oil prices.

On Tuesday, U.S. crude oil prices experienced a decline of over 3% amid trader concerns about the Federal Reserve’s ability to manage inflation. The West Texas Intermediate contract for January dropped $2.41, or 3.38%, reaching $68.91 per barrel. Simultaneously, the Brent crude contract for February lost $2.33, or 3.06%, trading at $73.70 per barrel.

The worry stems from a 0.1% increase in U.S. inflation in November, following a stagnant October. Analyst Phil Flynn from the Price Futures Group noted concerns among traders that the Fed may need to maintain an assertive stance on interest rates to control inflation.

Both contracts had slightly higher settlements on Monday, with Brent up 19 cents at $76.03 a barrel and WTI up 9 cents at $71.32. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) committed to cutting 2.2 million barrels per day for the first quarter of 2024. However, investors remain skeptical about a total supply decrease, anticipating excess supply due to output growth in non-OPEC countries.

ANZ Research analysts highlighted surprising growth in U.S. shale oil operations and substantial gains in other non-OPEC producers. Brent crude prices declined from above $80 a barrel at the beginning of December, while WTI slipped from over $77.

Both WTI and Brent are in a contango market structure for the first several months of 2024, indicating lower demand for crude or sufficient supply during that period. The oil market awaits fresh insights into fundamentals from OPEC and the International Energy Agency’s monthly oil market reports, with a keen eye on COP28 negotiations.

At COP28, a draft of a potential climate deal suggested measures to reduce greenhouse gas emissions but omitted the fossil fuel phase-out demanded by many nations. This drew criticism from the U.S., EU, and climate-vulnerable countries. Over 100 countries sought an agreement promising an eventual end to the oil age but faced opposition from OPEC members.

The market is also monitoring interest rate policies of key central banks this week, including the Federal Open Markets Committee, the European Central Bank, and the Bank of England. Additionally, China’s refiners, the world’s largest oil importer, have shown reduced demand for Saudi Arabian crude oil for January, opting for cheaper alternatives due to higher-than-expected prices. Saudi Arabia competes with Russia as China’s primary oil supplier.

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