Oil Skids on Soaring U.S. Inflation, Dollar; A Barrel Still Above $120

© Reuters.

By Barani Krishnan

AiVIF.com -- Oil prices skidded on Friday as U.S. inflation at more than 40-year highs suggested even more aggressive rate hikes that sent the dollar flying, making commodities priced in the greenback, including crude, costlier for non-holders of the currency.

But a barrel still held well above $120, ensuring a seventh straight weekly gain for U.S. crude and a fourth weekly win in a row for global benchmark Brent.

London-traded Brent was down 91 cents, or 0.8%, to $122.16 a barrel by 2:40 PM ET (18:40 GMT).  For the week though, it showed a gain of 1.8% and was up 9% over a four-week period.

On Wednesday, Brent hit $124.38, its highest since 14-year peaks of above $130 reached on March 9 after the invasion of Ukraine that triggered Western sanctions on Russian oil that upended the global energy market.  The global crude benchmark is up 57% so far for this year.

West Texas Intermediate, the New York-traded benchmark for U.S. crude, settled down 84 cents, or 0.7%, at $120.67 per barrel, after a three-month high of $123.15 on Wednesday. Year-to-date, WTI is up more than 60%.

Friday’s slide in Brent and WTI came as the Dollar Index, which pits the greenback against six other major currencies, hit a three-week high of 104.23. 

The dollar jumped after the Labor Department reported that the US Consumer Price Index grew 8.6% during the year to May, expanding by its fastest rate since 1981, as the cost of virtually everything — from food to fuel, shelter and clothing — rose again last month.

The average pump price of gasoline, particularly, hit more than $5 a gallon on Thursday for the first time ever in the United States, according to data from fuel price tracking service GasBuddy.

Separately, the University of Michigan said its closely-followed US Consumer Sentiment Index hit a record low in its latest survey for June as Americans become increasingly disillusioned with inflation taking a bigger bite of their paycheck each month.

U.S. bond yields, led by returns on the 10-year Treasury note hit a one month high of 3.17%, suggesting the Federal Reserve could be aggressive with rate hikes for the rest of the year in a bid to get inflation as close as possible to its annual 2% target. The central bank has previously said that it was ready to slow the economy, if necessary, to achieve its aim.

Analysts say the Fed might have a tough task ahead as oil and gasoline prices don’t seem to be coming down enough to stop inflation in its tracks.

“The oil market is still very tight and the eventual weaker U.S. consumer won’t really take effect until closer to the end of the year,” said Ed Moya, analyst at online trading platform OANDA. “Some traders are entering de-risking mode as prospects for the economy continue to dim, but no one really wants to abandon the best trade of the year, which is oil and energy stocks.”  ​