Oil prices experienced a second consecutive day of growth on Tuesday, propelled by the United States’ decision to acquire oil for its Strategic Petroleum Reserve (SPR) and the destructive wildfires sweeping through Canada, which sparked concerns over supply shortages.
Despite weaker-than-anticipated economic data from China indicating a sluggish economy, oil prices remained unaffected. Instead, the focus shifted to increased refinery throughput in the world’s second-largest oil consumer.
Brent crude futures advanced by 30 cents, or 0.4%, reaching $75.53 per barrel by 0417 GMT, while U.S. West Texas Intermediate crude stood at $71.38 per barrel, a gain of 27 cents, or 0.38%.
Both benchmark prices rebounded more than 1% on Monday, reversing a three-session downward trend.
The U.S. Department of Energy announced on Monday its intention to procure 3 million barrels of crude oil for the SPR, with delivery scheduled for August. The department requested offers to be submitted by May 31.
Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, noted, “The market received a boost from the expectation that the U.S. will continue repurchasing oil for the strategic reserve if WTI prices approach or fall below $70 a barrel.”
“Furthermore, some investors engaged in bargain-hunting following the recent substantial declines,” he added.
Chinese data revealed an 18.9% increase in oil refinery throughput in April compared to the same period the previous year, reaching the second-highest level on record.
ANZ analysts stated, “Demand in China continues to exhibit signs of improvement. Transportation data indicates increased car usage, and international air travel is on the rise.”
Brent and WTI futures had experienced four consecutive weeks of decline due to concerns about a possible U.S. recession and the risks of a significant government debt default in early June. The last time both benchmarks endured such a prolonged decline was in September 2022.
Tuesday’s oil prices were further bolstered by worries over supply disruptions caused by the wildfires in Canada. These widespread fires in Alberta compelled over 30,000 people to evacuate their homes temporarily and resulted in the closure of at least 319,000 barrels of oil equivalent per day (boepd), equivalent to 3.7% of national production.
Additionally, there are expectations that global crude supplies will tighten in the second half of the year as OPEC+ (the Organization of the Petroleum Exporting Countries and its allies, including Russia) plans to implement further output cuts.
Conversely, data from the Energy Information Administration revealed that U.S. oil output from the seven major shale basins is projected to reach a record high in June.
Looking ahead, analysts approach the current price rebound with caution, as uncertainties surrounding the macroeconomic environment persist. ANZ analysts emphasized, “The lack of any significant signals from the physical market is likely to keep oil prices under pressure.”
CMC Markets analyst Leon Li pointed out that the global macroeconomic situation and Europe’s energy demand-supply fundamentals will be pivotal factors driving prices in the latter half of 2023.
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