Oil prices saw a slight increase on Wednesday, following two consecutive sessions of decline. The market found some support from robust US economic data and optimistic expectations of rising demand in Asia. However, caution remained prevalent as investors awaited further indications on US monetary policy.
Brent oil futures experienced a 0.4% rise, reaching $76.18 per barrel, while West Texas Intermediate crude futures also climbed by 0.4% to $71.48 per barrel by 22:20 ET (02:20 GMT). Both contracts had previously dropped by more than $1 in the preceding two sessions.
The widely anticipated interest rate cut in China on Tuesday did not significantly bolster the market, as mortgage rate reduction fell short of some participants’ expectations for a more substantial decrease.
Nevertheless, the rate cut generated hope for improved demand in the world’s largest oil-importing country. Analysts predict that Beijing will implement further stimulus measures as it endeavors to reinforce economic recovery this year.
Additionally, analysts expect an upturn in fuel demand in other parts of Asia. They project increased demand for Indian fuel, driven by the expansion of the country’s aviation sector.
All eyes are now focused on Federal Reserve Chair Jerome Powell’s upcoming testimony before Congress, which is expected to provide additional guidance on the future direction of interest rates. Over the past year, oil prices have been negatively impacted by significant spikes in US rates, as traders feared that tighter monetary conditions would dampen economic activity and crude demand.
Powell’s testimony is also anticipated to dispel uncertainty surrounding monetary policy, following mixed signals from the Fed last week. While the Fed paused its rate hike cycle, it hinted at future interest rate increases later in the year.
Concerns have grown that the Fed may still have room to raise rates, as demonstrated by unexpectedly positive US housing data for May. Although this data suggests resilience in the US economy, it also raises the possibility of continued rate hikes.
Recent sessions witnessed a decline in crude prices, which occurred amidst fluctuations as the market assessed the potential impact of tightening supplies, weaker demand, and less accommodative global monetary conditions.
Energy companies closing more oil rigs are expected to contribute to tightening supplies in the United States. However, overall fuel demand in the country has remained subdued despite the start of the summer season, which typically sees increased travel activity.
Traders eagerly anticipate inventory data from the American Petroleum Institute and the Energy Information Administration, set to be released later this week. These reports are expected to provide further insights into US supplies and fuel demand, aiding market participants in making informed decisions.
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