WTI remains on the backfoot testing session lows near $108.50

• Risk-off tones weighed on the commodities markets.
• Big beats to UK and Canadian CPI stoked inflationary fears and Wall Street tanked.

At $108.59, the price of West Texas Intermediate (WTI) crude is down around 0.45% and the price has fallen from a high of $109.40 to a low of $108.56, despite an unexpected drop in US oil inventories overnight as investors shed risk assets.

The Energy Information Administration reported US oil inventories fell by 3.4-million barrels, while analysts on average expected a 1.3-million barrel rise. Gasoline inventories fell by 4.8-million barrels, while distillate stocks rose by 1.2-million barrels. However, economic data kicked up inflaiton fears created a risk-off tone across markets and commodities came under pressure, with oil suffering a sharp contraction. 

”Big beats to UK and Canadian CPI stoked inflationary fears, and US retailer stocks have been hammered. So we’re back to watching the ebb and flow of global risk appetite again, and it’s still volatile, and showing no real signs of basing,” analysts at ANZ Bank said.

On Wall Street, setting of a a slide in risk appatite, Target reported that higher-than-expected costs ate into its quarterly earnings. The stock fell over 25% and was tracking its worst day since the Black Monday crash on Oct. 19, 1987, highlighting worries about the US economy after the retailer became the latest victim of surging prices. As a result, the Dow Jones Industrial Average tumbled by 3.6% to 31,490.07 while the S&P 500 plunged 4% to 3,923.68. The Nasdaq Composite was 4.7% lower at 11,418.15. The US 10-year yield fell by 8.6 basis points to 2.88%.

Meanwhile, Reuters reported China is allowing 864 of Shanghai’s financial firms to resume operations as the city reported no new Covid-19 cases outside of quarantine zones for three days. ”The lockdown on the city of 25 million, as well as other areas of the country, has depressed Chinese demand by more than one-million barrels per day.”

”The mood wasn’t helped by reports of more COVID-19 cases in Beijing. The market had been optimistic it was past the worst, after Shanghai recorded several days without new cases outside quarantine,” analysts at TD Securities explained. ”However, the latest outbreak threatens to weigh on oil demand, as more cities are placed in lockdown. The selloff contrasted with data showing the oil market is tightening”

Meanwhile, OPEC production continues to underperform benchmarks materially, and analysts at TD Securities argued that, in this context, ”crude oil markets may be in the early innings of another break higher”.