Oil extended its rally for a fourth day, reversing midday gains after the Biden administration announced plans to replenish strategic reserves after maintenance work is completed later this year.
West Texas Intermediate posted a gain to top $73 a barrel, recovering from a drop of as much as 2.5% earlier in the session. Tuesday’s trade opened lower on news that China’s overall export growth slowed in April, while imports plummeted, shaking market confidence in demand. The U.S. decision to cancel a previously mandated sale of about 140 million barrels and begin buying crude later this year to replenish strategic caches 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 grow,” said Daniel Ghali, commodities strategist first of TD Securities.
Traders have been watching for news on when the US would replenish reserves, which are at a four-decade low. The administration had previously said it planned to replenish the cache when oil prices fell to around $70.
Oil has retreated about 10% this year as concerns about Federal Reserve monetary tightening and the potential for a US recession outweigh a resilient physical market. Bank of America Corp. cut its Brent crude forecast on Tuesday due to a weaker outlook for global demand. Still, the United Arab Emirates, a key OPEC member, downplayed the need for deeper output cuts after curbs that began this month.
“Expectations for the SPR recharge have kept buyers active on the dips and will likely hold a price low in the sixties,” said Carley Garner, commodities broker at DeCarley Trading. “But ultimately it’s OPEC that has the majority of the power. OPEC has got its mojo back and we suspect that the combination of SPR reloading and OPEC efforts will eventually take us towards $90 from oil”.
Prices:
- WTI for June delivery rose 55 cents to settle at $73.71 a barrel in New York.
- Brent for July settlement rose 43 cents to settle at $77.44 a barrel.
-With the assistance of Natalia Kniazhevich.
