Crude oil edges higher; Powell testimony, inventories data due

Investing.com -- Oil prices edged higher Wednesday, but concerns about the global economy, particularly China and the U.S., weigh heavily on likely demand growth this year.

By 09:05 ET (13:05 GMT), U.S. crude futures traded 0.2% higher at $71.34  barrel, while the Brent contract rose 0.1% to $75.97 a barrel.

Both benchmarks are trading around 10% lower so far this year, largely on concerns that the Chinese economic recovery from the COVID hit is faltering while Western economies, and the U.S. in particular, are struggling as central banks tighten monetary policy aggressively to attempt to tame soaring inflation.

Chinese demand crucial for crude market

The People’s Bank of China cut its benchmark loan prime rate earlier in the week in an attempt to boost its struggling economy, but this has done little to boost sentiment as the cut was modest and largely anticipated by markets.

“China’s demand outlook is crucial for the global market, given that the bulk of global demand growth this year is expected to be driven by China,” said analysts at ING, in a note. “Significantly weaker Chinese demand would also mean that the global oil balance would not be as tight as currently expected over the second half of 2023.”

China’s National Petroleum Corporation now expects domestic oil demand to grow by 3.5% on the year in 2023, which is lower than the 5.1% growth that was forecast back in March. 

Powell’s testimony in focus  

Away from China, the day’s highlight will be the start of Fed Chair Jerome Powell’s two-day congressional testimony, occurring just a week after the U.S. central bank paused its year-long hiking cycle but signaled more hikes were likely this year.

Should Powell offer up a hawkish tone, the crude market would likely sell off amid worries of falling economic activity, while the U.S. dollar would see some support, making commodities, like oil which are denominated in dollars, more expensive for holders of other currencies.

U.K. struggling to contain inflation

Data released earlier Wednesday showed the struggle that the U.K., the fifth largest economy in the world, is having with inflation, as British consumer prices held steady at 8.7% growth in May.

This largely cemented another rate hike by the Bank of England on Thursday, increasing the chance that the U.K. economy enters recession later this year.

Weekly U.S. crude stockpiles due 

U.S. oil inventory data from the American Petroleum Institute industry group will be released later on Wednesday, a day later than usual due to Monday’s public holiday, to be followed by the official data from the Energy Information Administration on Thursday.

A Reuters poll among five analysts estimated that crude stockpiles fell by about 400,000 barrels on average in the week to June 16.