Oil Reverses China-Induced Dip, Rises on US SPR Refill Plan

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(Bloomberg) – Oil extended its rally for a fourth day, reversing course at midday to climb higher after the Biden administration announced plans to replenish strategic reserves after completing maintenance work later this year.

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West Texas Intermediate gained to settle above $73 a barrel, recovering from a decline of up to 2.5% earlier in the session. Tuesday’s trade opened lower on news that China’s overall export growth slowed in April while imports fell, shaking market confidence in demand. The decision by the United States to cancel the previously mandatory sale of some 140 million barrels and start buying crude later this year to fill the strategic cache has halted the fall.

The price is right for the U.S. to start filling its strategic oil reserve, providing much-needed supply for oil bulls as recessionary headwinds build, said Daniel Ghali, commodity strategist at Securities. TD Mobiliar.

Traders are watching closely for news on when the United States will replenish reserves, which sit at their lowest level in four decades. The administration previously said it plans to replenish the cache when oil prices fall to around $70.

Oil has fallen around 10% this year as concerns over Federal Reserve monetary tightening and the potential for a US recession outweighed a resilient physical market. Bank of America Corp. on Tuesday lowered its forecast for Brent due to a weaker outlook for global demand. Still, the United Arab Emirates, a key member of OPEC, has played down the need for further production cuts following restrictions that began this month.

Expectations for the SPR recharge have kept buyers active on the dips and that’s likely maintaining a price floor in the sixties, said Carley Garner, commodities broker at DeCarley Trading. But in the end, OPEC has the majority of power. OPEC has regained its mojo and we suspect that the combination of SPR filling and OPEC efforts will eventually lead us to $90 Oil.

The story continues

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–With assistance from Natalia Kniazhevich.

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