Oil futures drop nearly 4% to settle at their lowest since June

U.S. inflation data, meanwhile, showed only a slight climb in November, with analysts noting that the data is unlikely to lead to a Federal Reserve interest-rate cut in early 2024.

Price action

• West Texas Intermediate crude for January
  CL00,
  +1.22%

  CL.1,
  +1.22%

  CLF24,
  +1.22%
  delivery shed $2.71, or 3.8%, to settle at $68.61 a barrel on the New York Mercantile Exchange.

• February Brent crude
  BRNG24,
  +1.36%

  BRN00,
  +1.36%,
  the global benchmark , shed $2.79, or 3.7%, at $73.24 a barrel on ICE Futures Europe. Brent and WTI oil marked the lowest front-month contract settlements since June 27, according to Dow Jones Market Data.

• January gasoline
  RBF24,
  +1.26%
  shed 3.1% to $1.98 a gallon, settling at the lowest since Dec. 3, 2021, while January heating oil
  HOF24,
  +1.57%
  fell 3.9% to $2.51 a gallon on Nymex, the lowest since early July.

• Natural gas for January delivery
  NGF24,
  +0.77%
  declined by 4.9% to $2.31 per million British thermal units, the lowest since June 12.

Market drivers

Oil futures lost more ground following the release of the U.S. CPI Index reading for November.

The “sticky” core U.S. inflation data lessen the chance of a first quarter Federal Reserve interest-rate cut, which “typically brings the prospects of a Fed-induced recession back into play,” said Stephen Innes, managing partner at SPI Asset Management.

The U.S. cost of living rose a scant 0.1% in November thanks to lower oil prices. Economists polled by The Wall Street Journal had forecast a second straight flat reading in the consumer-price index.

If food and gas are set aside, so-called core consumer prices rose a somewhat sharper 0.3% last month and matched the Wall Street forecast.

The Fed will announce its latest decision on monetary policy at the end of its two-day meeting Wednesday.

Oil prices had settled modestly higher Monday following a seven-week losing streak that was the worst for U.S.-traded crude since 2018.

New concerns over excess supply and a slowing demand have outweighed the continuing Middle East conflict, said StoneX’s Kansas City energy team, led by Alex Hodes, said in a Tuesday note.

The BBC reported Tuesday that Yemeni’s Iran-backed Houthi rebels hit a Norwegian tanker with at least one missile, leading to a fire.

The Houthis have claimed that the tanker was a crude oil tanker headed to Israel, as the “rebels have stepped up actions to insert themselves in the middle of the Israel-Hamas conflict,” said StoneX’s Kansas City energy team. “Tensions are undoubtedly rising in the Middle East and shipping lanes carry more risk than before the conflict began.”

Still, “it is important to note that attacks have not shifted toward Saudi oil facilities and thus crude oil prices remain unaffected by the rising tensions,” they said.

Also, “demand for crude oil typically picks up this time of year with refineries running at high utilization rates on the heels of fall turnarounds,” said the energy team at StoneX. “Combine that with the announced production cuts by OPEC+, and things seemed like they were tilted bullish for crude oil prices just a few weeks ago.”

However, the tone has quickly “shifted with a well-supplied gasoline market and increasingly better-supplied distillate market weighing on refiners’ margins,” they said. “Add a drop off in China’s crude imports to 5-month lows to our current lull in refined products demand, we’re seeing an increasingly well-supplied crude market.”

Meanwhile, in a monthly report released Tuesday, the Energy Information Administration forecast that solar and wind power generation will overtake generation from coal next year.

Read: EIA expects power from solar, wind generation to top coal next year

On Wednesday, the EIA will issue its weekly U.S. petroleum supply report. On average for the week ended Dec. 8, analysts expect the report to show a supply decline of 2.7 million barrels for crude, according to a survey conducted by S&P Global Commodity Insights. They also forecast inventory gains of 3.4 million barrels for gasoline and 1.6 million barrels for distillates.