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Oil rises as hawkish Fed talk offsets China demand worries.

21.06.2023 18:12  Autor: InvestCentrum  Sekce: Burzovní zpravodajství  Tisk

Oil prices bounced back on Wednesday, reversing the losses from the previous two sessions. The rebound was driven by the anticipation of hawkish comments from the Federal Reserve later in the day and the potential drawdown of U.S. crude inventories, which outweighed concerns about Chinese demand.

Brent futures edged higher to $76.13 a barrel, while U.S. West Texas Intermediate (WTI) crude futures rose to $71.45 a barrel as of 0611 GMT.

ANZ Research noted that they anticipate Fed Chair Jerome Powell to present a hawkish semi-annual testimony to Congress, aligning with the Federal Open Market Committee’s projection of increased interest rates in the coming months and sustained inflation in the near term.

Investors are looking to the congressional testimony by Powell, scheduled for later on Wednesday, to gain insights into the potential future interest rate actions in the largest global economy.

On Tuesday, two nominated Fed policymakers and an economist expressed their focus on reducing high inflation levels to promote sustainable growth in the U.S. economy. This emphasis on stabilizing the economy could have a positive impact on oil demand.

Analysts in a Reuters poll projected a potential decline of around 400,000 barrels on average in U.S. crude stockpiles for the week ending June 16. This anticipated drawdown in inventories provided additional support to oil prices.

The official U.S. oil inventory data from the American Petroleum Institute (API) will be released later on Wednesday, while the Energy Information Administration (EIA) will release its report on Thursday. Both reports were delayed by a day due to the Juneteenth public holiday on Monday. These reports will provide further insights into the oil inventory levels in the United States.

The speed of demand recovery in China, the largest oil importer globally, remains uncertain, which has limited the gains in oil prices. However, analysts are optimistic that the recently lowered loan prime rates (LPR) in China could potentially stimulate oil demand in the near future. The market is closely watching for any signs of improving demand dynamics in China, which could have a positive impact on oil prices.

According to Claudio Galimberti, research director at Rystad Energy, the lack of steady price climbs in oil can be attributed to the unclear data from China. However, he believes that the stimulus measures implemented in China will be effective in reviving the economy, leading to strong growth in demand during the second half of the year. This optimistic outlook suggests that improved economic conditions in China could have a positive impact on oil prices in the future.

Claudio Galimberti further commented on the uncertainty surrounding the Federal Reserve’s meeting. However, considering the latest inflation data, which showed a 4% increase, Galimberti believes that the Fed has room to take a more dovish approach. This implies that the central bank may be inclined to maintain a more accommodative monetary policy stance, which could potentially have implications for the oil market and other sectors of the economy.

China’s move to cut its benchmark loan prime rate (LPR) for the first time in 10 months is aimed at boosting economic growth. The reduction, albeit smaller than expected at 10 basis points, specifically targeted the five-year LPR. This action is part of China’s efforts to stimulate the economy and support various sectors, including the oil market, by making borrowing more affordable and encouraging investment and consumption.

Lower LPR expected to boost second-half demand, says CMC Markets analyst.

Further interest rate cuts possible in second half, says CMC Markets analyst.


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