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Oil surges above $80/barrel as dollar plummets on slowing inflation By Reuters

©Reuters. FILE PHOTO: A container ship sails along Nakhodka Bay near the oil terminal in the port city of Nakhodka, Russia, August 12, 2022. REUTERS/Tatiana Meel/File Photo

By Shariq Khan

NEW YORK (Reuters) – Oil traded above $80 a barrel on Tuesday, posting its biggest one-day gains in over a month as investors bought risk assets after US data showed inflation was slowing.

The market was also boosted by concerns about supply disruptions, including the ongoing closure of the Keystone crude oil pipeline from Canada to the United States following a massive leak last week.

Futures were at $80.68 a barrel, up $2.69 or 3.5%. US West Texas Intermediate (WTI) crude oil futures were at $75.39 a barrel, up $2.22, or 3%. Both contracts posted their largest one-day gains since November 4th.

The index plunged Tuesday after data showed underlying US CPI rose less-than-expected last month, fueling expectations that the Federal Reserve will slow the pace of its rate hikes on Wednesday.

A weaker dollar makes oil cheaper for holders of other currencies, which can boost demand.

“No one really saw this number fall short of expectations — a possible demand-positive event that brought supply to market,” said Mizuho analyst Robert Yawger.

The focus will now shift to how the Federal Reserve responds to the CPI report, Yawger added. A pause in rate hikes could push prices higher.

However, traders said oil supply concerns have been lingering for a few days, suggesting Tuesday’s rally could be due to broader “risk-on” sentiment following inflation data.

“This is just a broad dollar-based rally,” said Eli Tesfaye, senior market strategist at RJO Futures. “Given the market’s continued decline, any positive news will lift oil prices, but it remains to be seen if these rallies will hold up.”

Tuesday’s rally may also have come as traders closed short positions — speculative bets that a commodity’s price will fall — after both benchmarks fell more than 10% last week.

“After taking an absolute beating last week, some buying interest and bargain hunting is returning to the crude oil complex,” said Matt Smith, senior oil analyst at Kpler.

The market had recently fallen due to pessimistic demand prospects. The Organization of Petroleum Exporting Countries on Tuesday cut its absolute first-quarter oil demand forecast, saying the global economic slowdown is becoming apparent.

Chinese leaders were reportedly delaying a key economic policy meeting amid rising COVID-19 infections, raising concerns about a demand recovery at the world’s largest crude oil importer.

TC Energy (NYSE:) Corp’s Keystone Pipeline, which transports 620,000 barrels per day (bpd) of Canadian crude oil to the U.S., remains closed following an oil spill last week, which could reduce overall U.S. inventories, particularly at the hub Cushing, Oklahoma, the delivery point for US futures contracts.

Inventories were forecast to fall by 3.6 million barrels last week, according to a Reuters poll.

Industry data from the American Petroleum Institute is due at 4:30 p.m. ET (2130 GMT), followed by government data on Wednesday.