June 21, 2023 (MLN): Oil prices rebounded early on Wednesday, recovering after two straight sessions of losses as possible U.S. crude stock drawdowns outweighed China demand worries.
Brent crude is currently trading at $76 per barrel, up by 0.74% on the day.
While West Texas Intermediate crude (WTI) is trading at $71.33 per barrel, up by 0.71% on the day.
The congressional testimony by Powell later today is expected to provide clues on future rate moves in the world's biggest economy, as Reuters reported.
ANZ Research stated, "We expect Fed Chair (Jerome) Powell to deliver a hawkish semi-annual testimony to Congress reflecting the FOMC's median projection for higher interest rates in coming months and more resilient inflation in the near term."
Moreover, markets are pricing in a 79.4% probability of the Fed hiking rates by 25 bps in July before holding steady for the remainder of the year, according to CME Fed WatchTool.
China on Tuesday cut two benchmark lending rates, its one-year loan prime rate (LPR) and the five-year LPR by 10 basis points each.
CMC Markets analyst Leon Li said the lower LPR was expected to lift demand in the second half.
Tina Teng, a markets analyst at CMC Markets in Auckland stated, "The rate cuts were widely expected, hence it did not offer a bullish push to the oil markets."
A lack of clarity on the speed of demand recovery in China, the world's top oil importer, limited price gains although analysts were optimistic that lowered loan prime rates (LPR) could lift demand soon.
Furthermore, the Bank of England will also meet on Thursday and is expected to raise interest rates by 25 bps to a 15-year high of 4.75%.
Interest rates and oil demand have an inverse relation, as higher interest rates diminish the likelihood to spend which can exert downward pressure on the demand for oil.
