Oil endured another choppy session as traders took stock of China’s efforts to stimulate the economy and awaited commentary from the head of the U.S. Federal Reserve that may shape the outlook for interest rates.

West Texas Intermediate for August delivery edged lower toward US$71 a barrel after dropping as much as 0.6 per cent early in the session. While China has taken a series of incremental steps to aid growth, there is concern that its moves may lack sufficient punch.

In recent days there have been signs of firmness in Middle Eastern crude markets. A flurry of buying from refiners in China and Japan, alongside busy trading activity in a key pricing window, has seen spot differentials for some grades double over the last week, an unusually large move over that time period.

Oil has dropped in the first half as China’s reemergence from its strict COVID Zero policies failed to gain traction and global crude supplies, including from Russia, proved abundant. In response, the Organization of Petroleum Exporting Countries and its allies have announced supply cuts to try and tighten the market. 

Later Wednesday, Fed Chair Jerome Powell is scheduled to give his semi-annual report to Congress. While policymakers kept interest rates unchanged at their meeting last week, they forecast further rises in the second half to help bring still-elevated inflation back toward their target.

“We are increasingly doubtful that we will see a recession in the U.S.,” Ole Hansen, head of commodities strategy at Saxo Bank A/S, said in a Bloomberg TV interview. “China simply cannot afford not to do additional stimulus measures, so we’re still looking for demand to recover in the second half.”

With China’s outlook in focus, the economy is expected to stabilize in the second half following the stimulus, the China Securities Journal reported Wednesday, citing analysts. Separately, Wang Huning, the Communist Party’s No. 4 official, highlighted the importance of boosting consumption. 

Prices:

• WTI for August delivery lost 0.2 per cent to US$71.06 a barrel at 10:24 a.m. in London.
• Brent for August settlement fell 0.3 per cent to US$75.70 a barrel.