Oil prices were slightly down on Tuesday, while outlook is positive supported by U.S. plans to purchase oil for its Strategic Petroleum Reserve (SPR) and by raging wildfires in Canada that fuelled supply worries.
A raft of weaker-than-expected Chinese data that suggested a soft economy failed to dampen prices, with the market instead focusing on higher refinery throughput in the world’s second-biggest oil consumer.
U.S. West Texas Intermediate crude was at $71.17 a barrel, down 10 cents, or 0.14%.
Both benchmarks rose more than 1% on Monday, reversing a 3-session losing streak.
The U.S. Department of Energy said on Monday it would buy 3 million barrels of crude oil for the SPR for delivery in August, and asked that offers be submitted by May 31.
“The market got a boost from expectations that the U.S. repurchase of oil for the strategic reserve will continue if WTI prices fall near or below $70 a barrel,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.
“Behind the gain was also bargain-hunting by some investors after the recent sharp declines,” he said.
China’s oil refinery throughput in April rose 18.9% from a year earlier to the second-highest level on record, data showed on Tuesday.
“Demand in China continues to show signs of improvement. Transportation data is showing increased car usage, while international air travel is rising,” said ANZ analysts in a note.
Last week, Brent and WTI futures fell for a fourth straight week over fears of a U.S. recession and risks of a historic default on government debt in early June. The benchmarks last recorded a similar streak of weekly declines in September 2022.
Oil prices on Tuesday also drew support from supply worries stemming from wildfires in Canada.
The widespread blazes in Alberta, Canada forced more than 30,000 people out of their homes at one point and shuttered at least 319,000 barrels of oil equivalent per day (boepd), or 3.7% of national production.
Global crude supplies could also tighten in the second half as OPEC+ – the Organization of the Petroleum Exporting Countries and allies including Russia – plan additional output cuts.
On the other hand, U.S. oil output from the seven biggest shale basins is due to rise in June to the highest on record, data from the Energy Information Administration showed.
Looking ahead, analysts are cautious on the momentum of the current price rebound.
“With so much uncertainty surrounding the macro environment, the lack of any strong signals from the physical market is likely to see oil prices remain under pressure,” said ANZ analysts.
The global macroeconomic situation and Europe’s energy demand-supply fundamentals will be key price drivers in the second half of 2023, said CMC Markets analyst Leon Li.