Oil prices in Asian trade witnessed a notable increase on Wednesday, as Brent approached bullish territory due to a decline in the value of the dollar, preceding crucial U.S. inflation data. Moreover, attention was focused on Chinese stimulus measures and the possibility of rising U.S. stockpiles.
Yesterday, crude prices experienced a surge in response to the weakening dollar, which reached a two-month low on speculations of the Federal Reserve nearing its peak interest rates in the ongoing cycle. As the Asian session unfolded, the greenback extended its decline, dropping 0.4% against a basket of currencies.
Additionally, oil prices were boosted by tightening supplies resulting from production cuts enacted by Saudi Arabia and Russia.
Brent oil futures climbed 0.4% to reach $79.62 per barrel, marking their highest level since early May. Similarly, West Texas Intermediate crude futures rose 0.3% to $75.03 per barrel at 21:32 ET (01:32 GMT). Both contracts experienced a rally of over 2% on Tuesday, settling at their highest levels in ten weeks.
Brent was on the verge of surpassing the $80 per barrel mark, which analysts suggest could send further bullish signals to the crude markets.
Attention on U.S. Consumer Price Index (CPI) Amid Speculation of Fed Rate Hike
However, the ongoing rally in oil prices was somewhat tempered by the anticipation of key U.S. consumer price index (CPI) inflation data. The CPI reading expected on Wednesday is likely to reveal lower headline inflation, while core CPI inflation is anticipated to remain steady.
Persistently high core inflation is widely anticipated to prompt further interest rate hikes from the Federal Reserve as a measure to curb price pressures. The central bank is expected to raise rates by at least 25 basis points in its upcoming late-July meeting, with several officials warning of more hikes in the future.
Nevertheless, some Federal Reserve officials also indicated that the rate hike cycle was nearing its conclusion, resulting in a rally in risk-driven assets this week while impacting the dollar negatively.
Expected Rise in U.S. Inventories
Data from the American Petroleum Institute (API) indicated an unexpected growth of over 2 million barrels in U.S. crude stockpiles during the week ending July 7.
Typically, API data tends to align with the official Energy Information Administration data, which is scheduled for release later on Wednesday. It is projected to show a draw of 2.2 million barrels.
Anticipation of China’s Stimulus Measures
Oil markets were also awaiting signals regarding potential stimulus measures in China, a major importer of crude oil, as the country grapples with a slowdown in its post-COVID economic recovery.
On Wednesday, the China Securities Journal, a media outlet backed by the Chinese Communist Party, reported that Beijing is likely to increase spending on stimulus measures to support the economy, following a series of weak economic indicators in the country.
The anticipated boost in Chinese stimulus measures is expected to stimulate economic growth, subsequently driving up oil demand as domestic fuel consumption increases.
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