Oil reverses gains as traders see central banks remain hawkish

(Bloomberg) – Oil reversed early gains after hot inflation data led traders to believe central bankers are likely to remain hawkish in the coming months.

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West Texas Intermediate fell below $76.50 after hitting $77.74 after China and India released strong production and oil sales data.

Crude oil has fallen so far this year as prospects of tighter US monetary policy and rising inventories have outweighed optimism that Chinese demand will pick up after the end of coronavirus lockdowns. Russia’s flows are also in focus as Western sanctions and bans tightened over the war in Ukraine. Though Moscow has largely managed to keep exports afloat 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 recover along with the economy, there is concern that high US interest rates 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 plans to cut supply by 500,000 barrels a day starting this month, portraying the decision as retaliation against sanctions. But the European Union said Moscow has been forced to make cuts, while RBC Capital Markets said the Decision may reflect the difficulty of maintaining production in difficult areas.

“The big question for oil markets in the coming months will be how far Russia’s oil and refining exports will be turned upside down,” said Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank of Australia. “Markets have generally overestimated the extent of Russian oil supply disruptions since the start of the Ukraine war.”

In the US, commercial inventories have expanded significantly in recent months, indicating ample supply of crude oil in the world’s largest economy. On Tuesday, the American Petroleum Institute reported that US inventories rose by 6.2 million barrels over the past week, according to people familiar with the figures. An official breakdown comes later on Wednesday.

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(Updated continuously.)

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