Oil has closed above $80 a barrel, recording its largest daily gains in over a month, as investors purchased risk assets in response to US data indicating a slowdown in inflation.
Concerns about supply interruptions, such as the prolonged blockage of the Canada-US Keystone oil pipeline after a large leak last week, also supported the market.
Brent crude futures finished at $80.68 a barrel, up $2.69, or 3.5%. Futures for US West Texas Intermediate (WTI) crude finished at $75.39 a barrel, an increase of $2.22, or 3%. Since November 4, both contracts posted their greatest daily gains.
The dollar index fell on Tuesday after data indicated that underlying US consumer price inflation climbed less than anticipated last month, bolstering predictions that the Federal Reserve will moderate the pace of its interest rate hikes on Wednesday.
A weakening dollar reduces the cost of oil for holders of other currencies, hence increasing demand.
However, traders noted that oil supply fears have existed for a few days, suggesting that Tuesday’s gain may have been due to a larger “risk-on” mentality following the release of inflation statistics.
The recovery on Tuesday could possibly be the result of traders closing out short positions – speculative wagers that the price of a commodity would fall – after both benchmarks declined by more than 10% last week.