By Barani Krishnan
Investing.com - Reality finally seems to be setting in on the oil market.
After initially defying blockbuster crude builds reported back-to-back by the U.S. government in pursuit of what they believed would be oncoming Chinese demand, those long the market finally yielded to something greater: incessant data on creeping inflation, accompanied by calls for appropriate rate hikes.
"Crude prices are falling as supplies are plentiful and as global growth concerns return," said Ed Moya, analyst at online trading platform OANDA. "Oil is seeing steady selling pressure and the true test will be if prices can break below the $72-a-barrel level. "
New York-traded West Texas Intermediate, or WTI, crude for March was down $2.35, or 3%, to $76.14 by 11:25 ET (16:25 GMT). WTI's session low of $75.08 marked a near two-week bottom. For the week, the U.S. crude benchmark was down nearly 5%.
London-traded Brent crude for March delivery was down $2.23, or 2.6%, to $82.91. Brent's intraday bottom was $81.81, a low since Feb. 6. For the week, the global crude benchmark was down 4%.
"We should remember that the economy triumphs over everything and there's a renewed threat to that now from inflation," said John Kilduff, partner at New York energy hedge fund Again Capital. "Oil prices greatly add to headline inflation. We can make an exception for them to be higher if there’s commensurate demand, but not when there's tons of supply."
"So, the bottom is finally falling out of the oil market as it should have after that mega build," Kilduff said, referring to the 16.3-million-barrel crude inventory increase reported on Wednesday by the U.S. Energy Information Administration, or EIA, for the week ended Feb. 10.
The build was the fourth largest cited by the EIA in its history of reporting on oil supply/demand in the United States. It came after the previous week's increase of 2.4 million barrels and marked the eighth straight week of higher inventories that have added nearly 51 million barrels to supply.
Traders of most risk assets — except possibly those in oil — have been spooked all week by one data point after indicating stubbornly higher inflation despite a year of rate hikes by the Federal Reserve.
US wholesale prices, one of the key determinants of inflation, rose their most in seven months in January, the Labor Department reported on Thursday.
That was after Tuesday's report on consumer prices from the department that again suggested stickier-than-thought inflation.
The data prodded at least two Fed officials on Friday to call for appropriately higher rates, adding to the chorus of policymakers at the central bank who had droned all week about the renewed threat to the economy from unbridled price growth.
"We need to continue rate hikes until we see more progress," Fed Governor Michelle Bowman said. "Inflation is still far too high. Your guess is as good as mine as to what happens next in the economy."
Richmond Fed President Tom Barkin concurred, saying controlling inflation would require more rate increases. "How many, we'll have to see."
Their comments came on the heels of more rate warnings earlier in the week from other officials at the central. Cleveland Fed chief Loretta Mester said on Thursday that U.S. interest rates need to rise to above 5% and remain there an extended time in order to bring inflation down meaningfully.
St. Louis Fed President James Bullard, often viewed as the most hawkish official at the central bank, said he hadn't been in favor of lowering the quantum of rate hikes — something that happened the last two months — until inflation was under better control. Bullard also said he would support a 50-basis-point hike at the Fed's next rate decision on March 22, after the 25-basis-point increase in February.
The Fed added 450 basis points to rates since March via eight hikes, in its bid to control runaway inflation. Rates currently stand at a peak of 4.75% after eight hikes by the Fed over the past year.
Crude prices treaded water in the past two sessions as bulls in the space tried to bravely ignore the inventory builds reported by the EIA in exchange for projected demand from China, the world's largest oil importer which had just come off stringent COVID-19 measures that had been holding back its energy usage.
Analysts, however, said Chinese import data supporting a major oil rally will likely not emerge for at least another two weeks. Meanwhile, latest available data showed the world's largest crude importer bought 10.98 million bpd, or barrels per day, in January, down from December's 11.37M bpd and November's 11.42M bpd.