By Ambar Warrick
Investing.com -- Oil prices crept higher on Wednesday after sharp losses in the prior session as markets awaited more cues on U.S. interest rates and the path of monetary policy, while traders also questioned the outlook for a potential demand rebound this year.
The minutes of the Federal Reserve’s February meeting, due later in the day, is largely expected to reiterate the central bank’s hawkish rhetoric, given that U.S. inflation remained stubbornly high in January.
A reading on the Personal Consumption Expenditures index - the Fed’s preferred inflation gauge, due later in the week, is also expected to show that inflation remained high in January, which in turn gives the central bank more impetus to keep raising interest rates.
Brent oil futures rose 0.3% to $83.13 a barrel, while West Texas Intermediate crude futures rose 0.1% to $76.44 a barrel by 21:48 ET (02:48 GMT). Both contracts plummeted over 1% each on Tuesday.
Stronger-than-expected U.S. economic activity readings for February also did little to stem a selldown in oil, given that strength in the U.S. economy gives the Fed more headroom to keep raising rates.
Rising interest rates are expected to stymie economic growth this year and severely crimp oil demand, especially in the U.S., Europe, and other developed countries.
The dollar rose after Tuesday’s reading, and was trading close to a six-week high against a basket of currencies on Wednesday. Strength in the dollar also tends to weigh on oil prices.
Markets also appeared to be scaling back bets that China will drive a demand recovery this year.
Citigroup’s Global Head of Commodities Research, Ed Morse, warned on Tuesday that oil demand in China was unlikely to exceed 2021 levels, and that a demand recovery in the country was “overanticipated.”
While Chinese oil consumption recovered after the country relaxed most anti-COVID restrictions, demand is still seen below pre-pandemic highs. Travel demand also appeared to have stabilized after peaking in late-January.
"After this recovery, it's the last hurrah for demand in China and close to the last hurrah for demand around the world,” Morse said in an interview with Bloomberg.
His comments largely contradicted recent forecasts from the Organization of Petroleum Exporting Countries and the International Energy Agency that a Chinese recovery will drive oil demand to record highs this year.