WTI Oil retreats below $87 as bets on steeper Fed tightening curb gains

• With $88.20 capping gains, WTI Oil slips below $87.00 on Friday.
• Prices face pressure as markets anticipate faster Fed tightening will curb US oil consumption.
• An unexpected rise in US oil inventories in the week of November 6 has helped allay supply concerns.

A 1.2% decline on Friday takes the US benchmark West Texas Intermediate (WTI) Oil to session lows below $87.00, following Thursday’s rebound of more than 3%. The moderate pullback reflects market expectations that more aggressive monetary tightening by the Federal Reserve (Fed) will constrain US oil consumption, outweighing concerns over the stalled Middle East conflict.

Following the release of US Consumer Price Index (CPI) figures earlier this week, markets have begun to speculate that the US central bank might raise rates by half a point in December and step up monetary tightening over the coming months. Remarks from key Fed officials have reinforced that speculation. Such a path would restrain US economic growth and, most likely, depress oil consumption.

US Oil Inventories Rise Despite Expectations of a Drawdown

A rise of 4,657 million barrels in crude oil inventories for the week ending on November 6 was reported by the US Energy Information Administration (EIA). Markets had anticipated a drawdown of 1.1 million barrels, following a decline of 0.8 million barrels the week before. 

Coming after a similar finding in an earlier American Petroleum Institute (AIP) report, the figures have helped alleviate fears of an oil shortage, at least for the time being.

Developments in the Middle East, however, are limiting further losses in crude oil prices. Efforts to return Washington and Tehran to diplomatic talks appear to have stalled. US President Trump dashed the remaining hopes of a breakthrough by declaring that “we don’t need a deal with Iran.”

Although Trump also asserted that the US controls the Strait of Hormuz, attacks on vessels trying to pass through it have become more frequent over the last few weeks. The waterway carried about 20% of global supply before the war, and the increased attacks cast serious doubt on the credibility of his claim.