Oil Reverses China-Driven Drop, Rises on US Plan to Refill SPR

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

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West Texas Intermediate eked out a gain to settle above $73 a barrel, recovering from a decline of as much as 2.5% earlier in the session. Tuesday trading opened lower on news that China’s overall export growth slowed in April while imports plummeted, shaking the market’s confidence in demand. The US decision to cancel the previously mandated sale of some 140 million barrels and begin purchasing crude later this year to refill the strategic cache halted the slide.

“The price is right for the US to begin refilling their strategic oil reserve, providing a much needed bid for oil bulls as recessionary headwinds grow,” said Daniel Ghali, a commodity strategist at TD Securities.

Traders have been watching closely for news on when the US would refill the reserves, which stand at a four-decade low. The administration had previously said it planned to restock the cache when oil prices fell to about $70.

Oil has retreated about 10% this year as worries over the Federal Reserve’s monetary tightening and the potential for a recession in the US outweigh a resilient physical market. Bank of America Corp. on Tuesday cut its forecast for Brent crude on a weaker outlook for global demand. Still, the United Arab Emirates, a key OPEC member, downplayed the need for deeper production cuts following curbs that started this month.

“Expectations for the SPR refill have been keeping buyers active on dips and it probably keeps a price floor in the low sixties,” said Carley Garner, a commodity broker at DeCarley Trading. “But ultimately, it is OPEC that has the majority of the power. OPEC has its mojo back and we suspect the combination of SPR refilling and OPEC efforts will eventually lead us toward $90 oil.”

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–With assistance from Natalia Kniazhevich.