Oil rises as hawkish Fed talk expectations offset China demand worries

Singapore, June 21 (BNA): Oil prices rebounded early Wednesday, bouncing back after two straight sessions of losses, as expectations of hawkish Fed talk later in the day and the possibility of a US crude stock draw outweighed demand concerns in China.

Brent crude futures rose 23 cents to $76.13 a barrel, and US West Texas Intermediate crude futures rose 26 cents to $71.45 a barrel by 0611 GMT, Reuters reported.

“We expect Fed Chairman (Jerome) Powell to provide a hawkish semi-annual testimony to Congress that reflects the FOMC’s median expectation of higher interest rates in the coming months and more resilient inflation in the near term,” ANZ Research said in a note. The Federal Open Market Committee of the central bank.

Powell’s congressional testimony later on Wednesday is expected to provide clues to future interest rate movements in the world’s largest economy.

Two Federal Reserve policymakers and an economist nominated to join them on the Washington-based central bank’s board said on Tuesday their focus is on bringing down very high inflation so the US economy can return to sustainable growth, which in turn can boost demand for oil.

A possible drop in US crude stocks also supported prices, as a Reuters poll of five analysts predicted that crude stocks fell by an average of about 400,000 barrels in the week ending June 16.

Official US oil inventory data will be released from industry group the American Petroleum Institute later on Wednesday and the Energy Information Administration on Thursday, with both reports delayed by a day after the June public holiday on Monday.

A lack of clarity about the speed of demand recovery in China, the world’s largest oil importer, capped price gains although analysts were optimistic that a cut in loan prime rates (LPR) could soon lift demand.

“The only reason I think prices are not rising (steadily) yet is because the data from China is still not clear. However, the stimulus is now in and I bet it will be effective in reviving the economy and with it we will,” said Claudio Gallimberti, director of research at Rystad Energy, “delivered strong demand growth in the second half.”

“As for the Fed (meeting), that’s also uncertain, but with the latest inflation data at 4%, they have room to be pessimistic,” Gallimberti added.

In a bid to boost growth, China on Tuesday cut its benchmark LPR for the first time in 10 months, with a 10-basis-point lower-than-expected cut in the five-year LPR.

CMC Markets analyst Leon Lee said the LPR’s decline is expected to lift demand in the second half.

“The Ministry of Commerce also plans to implement more policies to stimulate consumption,” he said. “The possibility of further interest rate cuts in the second half of the year cannot be ruled out.”

MI