Oil prices experienced a recovery early on Wednesday, bouncing back after two consecutive sessions of losses. The market’s focus shifted to expectations of a hawkish Federal Reserve testimony later in the day and the possibility of U.S. crude stock drawdowns, outweighing concerns about China’s demand for oil.
As of 0611 GMT, Brent futures strengthened by 23 cents to reach $76.13 per barrel, while U.S. West Texas Intermediate (WTI) crude futures saw a marginal increase of 26 cents, reaching $71.45 per barrel.
ANZ Research noted that they anticipate Federal Reserve Chair Jerome Powell’s semi-annual testimony to Congress to reflect the Federal Open Market Committee’s median projection, signaling the likelihood of higher interest rates in the coming months and persistent near-term inflation.
This testimony, scheduled for later on Wednesday, is expected to provide insights into future rate adjustments in the world’s largest economy.
On Tuesday, two Federal Reserve policymakers and an economist nominated to join the Washington-based board emphasized their commitment to curbing excessive inflation to foster sustainable growth in the U.S. economy, which could subsequently boost oil demand.
Supporting the prices further was the possibility of a reduction in U.S. crude stocks. A Reuters poll, encompassing five analysts, estimated an average decline of approximately 400,000 barrels in crude stockpiles during the week ending June 16.
Official data on U.S. oil inventory from the American Petroleum Institute industry group will be published on Wednesday, with the Energy Information Administration’s report following on Thursday. These reports were delayed by a day due to the Juneteenth public holiday on Monday.
Although analysts remained optimistic about the potential boost in demand resulting from lowered loan prime rates (LPR) in China, the world’s leading oil importer, concerns about the pace of demand recovery in the country constrained price gains.
Claudio Galimberti, Research Director at Rystad Energy, commented on the current situation, saying, “The only reason why I think prices are not climbing steadily yet is because the data from China is still unclear. Yet, the stimulus is now in, and my bet is that it will be effective at reviving the economy, and with it, we will have strong second-half growth in demand.”
Galimberti also added that uncertainties surround the upcoming Federal Reserve meeting, but given the latest inflation data at 4%, they may have room for a more dovish approach.
In a move to enhance economic growth, China announced a reduction in its benchmark loan prime rate (LPR) on Tuesday, marking the first cut in 10 months. The reduction, albeit smaller than expected at 10 basis points, is projected to stimulate demand in the second half of the year, according to CMC Markets analyst Leon Li.
He mentioned that the Ministry of Commerce plans to implement additional policies to boost consumption and didn’t rule out the possibility of further interest rate reductions later this year.
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