Oil climbs to $97 a barrel as rally continues

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Crude oil prices extended their gains in early trade on Thursday, heading towards $100 a barrel, increasing investors’ fears high prices would stoke inflation.

Brent crude added 0.4 per cent to trade at $96.98 per barrel, having earlier reached its highest level since November above $97, while US marker West Texas Intermediate gained 0.3 per cent to $93.94 after a weekly US government report indicated that stockpiles at a critical US delivery hub fell further.

Oil prices have risen 35 per cent since June after some of the world’s biggest producers announced a series of supply cuts to last until the end of this year, adding to investors’ concerns over persistent inflation in the US and Europe.

“The biggest question mark for the inflation outlook is the evolution of fuel prices,” said Wouter Thierie, an analyst at ING.

“If, as we expect, it is a temporary uptick, the impact on our inflation outlook will be fairly moderate. The danger, though, is that if oil prices stay high for longer, companies will increasingly pass on these higher fuel prices, causing it to trickle down to core inflation again.”

European stocks slipped in early trade, after five successive days of falls. The region wide Stoxx Europe 600 index was down 0.1 per cent while Germany’s Dax fell 0.2 per cent and London’s FTSE 100 dropped 0.4 per cent.

However, yields on eurozone government debt rose after preliminary inflation data from Spain showed that consumer prices rose for a third successive month.

That data showed consumer prices grew at an annual rate of 3.2 per cent in September, below the 3.3 per cent forecast of economists polled by Reuters. Core inflation, which excludes energy and fresh food prices, dipped from 6.1 per cent to 5.8 per cent.

Yields on the 10-year German Bund, a regional benchmark in Europe, rose 0.05 percentage points to a fresh post-2011 high of 2.89 per cent. Bond yields rise when prices fall.

The European Central Bank had at its last meeting raised interest rates to an all-time high of 4 per cent, signalling that its historic campaign had likely drawn to a close, unless surprises in the price data push policymakers towards further action. 

Inflation data for Germany, the eurozone’s largest economy, is due to follow later in the day, while the US and the eurozone-wide figures will come out on Friday. 

“Today’s and tomorrow’s inflation figures are likely to be scrutinised by a data-dependent ECB and play a central role in the next interest rate announcement in October”, said Pia Fromlet, Euro area economist at SEB.

The euro, which tends to strengthen when investors expect higher ECB rates, rose 0.1 per cent against the dollar, edging up from a nine-month low.

Contracts tracking Wall Street’s benchmark S&P 500 and those tracking the tech-focused Nasdaq 100 advanced 0.1 per cent ahead of the New York opening bell. 

In Asia, Hong Kong’s Hang Seng index gave up 1.3 per cent, hitting its weakest level in 10 months, while China’s benchmark CSI 300 lost 0.3 per cent and Japan’s Topix was down 1.4 per cent.