As nervous inflation counters good demand data, oil prices tumble

On Wednesday, oil prices dipped somewhat due to concerns regarding faster-than-expected U.S. economic expansion. The CPI inflation data undermined OPEC's estimate of solid demand and evidence that U.S. gasoline demand remained robust.

London Brent oil futures fell 0.3% to $93.23 a barrel, while U.S. West Texas Intermediate futures climbed 0.1% to $87.39 per barrel at 20:59 EDT (00:59 GMT). On Tuesday, both contracts decreased as stronger-than-expected U.S. inflation data strengthened the dollar and spurred a sell-off across key asset classes.

Nonetheless, encouraging signals from the Organization of Petroleum Exporting Countries (OPEC) aided in preventing further oil price drops.

Despite inflationary challenges, the cartel noted in a monthly report on Tuesday that it expects oil consumption to climb gradually in 2022 and 2023 due to the resilience of major economies.

OPEC anticipates an increase in oil consumption of 3,1 million barrels per day (bpd) in 2022 and 2,7 million barrels per day (bpd) in 2023.

The American Petroleum Institute said that gasoline inventories in the United States continued to fall for the week ending September 9, indicating that consumers were encouraged by the recent reduction in fuel prices.

While overall U.S. oil inventories grew unexpectedly, a sizable chunk of this increase is likely related to a drawdown from the Strategic Petroleum Reserve.

It is anticipated that official data from the Energy Information Administration will reflect a weekly increase in oil inventories later today. Nonetheless, gasoline inventories are expected to decline.

As investors expected that rising inflation and interest rates would have a negative effect on crude consumption, oil prices have fallen from their early-year peaks. China, the world's largest oil importer, has had a rash of COVID-related lockdowns, casting questions on the sustainability of crude demand this year.

Rising interest rates may also induce a U.S. recession, which is projected to weaken demand. In response to Tuesday's CPI news, the markets are already pricing in a series of significant interest rate hikes this year as the Fed strives to rein in inflation.