Throwing another curve ball into an already confusing inflation picture, crude oil prices have retreated sharply again this week and taken some of the edges off renewed anxiety in interest rate markets.
Both Brent crude and West Texas Intermediate crude futures dropped another 1% on Thursday $1.02 to their lowest since late March, just before a surprise OPEC+ production cut announcement.
Although oil prices have not yet reversed all their gains from the OPEC move, Brent is down more than 5% over the past week and the year-on-year deflation in oil prices is running at 24%.
The fresh swoon in energy prices appears down to a mix of factors – worries about global demand amid higher interest rates on one side and supply issues, including Western powers doubling down on the Russian price cap.
Even though the latest data from the U.S. Energy Information Administration showed crude stockpiles fell by surprisingly large 4.6 million barrels, gasoline inventories jumped unexpectedly on disappointing demand. And there are also signs that oil loading from Russia’s western ports this month is rising to the highest since 2019 -= despite Moscow’s pledge to cut output.
The energy price move gives markets some relief after Wednesday’s disturbing British double-digit inflation readout for March, which jarred all bond markets fearful of further central bank tightening and revealed annual UK food price inflation running at close to 20%.
Funds invested in consumer goods companies like P&G, Unilever, and Nestle reckon these firms should now start easing price increases as supply chain costs decline – or risk damaging market share and margin growth.
Elsewhere, the first quarter U.S. corporate earnings season remains a mixed bag, with banks seemingly weathering the March storm – but signs of margin pressure were evident in manufacturers such as Tesla.
Tesla shares dropped 2% after the electric-vehicle maker’s sixth U.S. price cut this year.
In another bright spot on the inflation front, German data showed producer prices rose less than expected in March, posting the smallest year-on-year increase since June 2021.
Overall, Wall St futures were slightly lower on Thursday along with most other world bourses – with implied volatility levels ebbing to their lowest since 2021.
Helped by the oil price retreat, 2-year U.S. Treasury yields fell back almost 10 basis points to 4.19%.
The U.S. government debt ceiling standoff was also in focus as the latest tax revenue data suggested the date the government may run out of funds will be sooner than previously thought.
Republican U.S. House Speaker Kevin McCarthy on Wednesday unveiled a plan to raise the debt ceiling by $1.5 trillion and cut federal spending by three times that amount, laying out an opening position in what is likely to be a tense partisan debate over government borrowing.