Oil News: Possible SPR Refill Calms Price Slide, Bearish Outlook Persists

Oil Prices Rebound Following U.S. Reserve Purchase Plan

Light crude oil futures edged higher Tuesday as the market tried to recover from Monday’s steep losses, which saw Brent and WTI futures drop approximately 6%. Traders are focusing on a potential rangebound trading area, centered between the long-term retracement zone of $69.21 and $71.63—a level likely to attract significant short-term interest. Adding technical resistance is the 50-day moving average at $70.26, reinforcing this zone as a potential cap on immediate gains.

At 09:45 GMT, Light Crude Oil futures are trading $67.81, up $0.43 or +0.64%.

Strategic Reserve Replenishment Offers Support

The U.S. government’s announcement of plans to buy up to 3 million barrels of oil for its Strategic Petroleum Reserve (SPR), with delivery scheduled through May 2024, has introduced some fresh buying interest to the market. This move is seen as a stabilizing factor after Monday’s decline, though limited SPR funds mean further purchases will require Congressional approval. Still, traders are treating the SPR news as a modest buffer for downside risks, though broader bearish sentiment driven by global demand concerns remains.

Geopolitical Tensions and the Iran-Israel Conflict

Traders are also closely monitoring developments in the Middle East after Israel’s recent strike on Iran. Monday’s price drop suggests that the immediate supply risk was re-evaluated by the market, as the strike notably bypassed Tehran’s oil infrastructure. U.S. officials have warned Iran of severe consequences for further escalations, though Iranian spokesperson Esmaeil Baghaei stated that Tehran would respond using “all available tools.” Any flare-up impacting Iranian oil facilities could lead to an upward spike in prices due to supply disruptions, which traders continue to price into short-term risk.

Demand Concerns and Economic Pressures Weigh on Sentiment

Oil demand outlooks remain subdued. China’s slower-than-expected economic recovery, weak winter kerosene demand in the Northern Hemisphere, and potentially higher U.S. crude and gasoline inventories all contribute to a muted demand forecast. According to a Reuters poll, U.S. crude and gasoline stockpiles likely increased last week. The American Petroleum Institute (API) is set to release its inventory report on Tuesday, with the Energy Information Administration (EIA) data following on Wednesday. These reports could confirm weaker demand, adding pressure to prices if inventory levels rise.

Political Influences and Market Sentiment Ahead of U.S. Elections

With next Tuesday’s U.S. election approaching, oil traders are bracing for potential volatility tied to political outcomes. A Trump victory, given his pro-oil industry stance, could spur a short-term rally. However, most analysts believe that any positive reaction would be temporary, met by selling pressure as the demand outlook remains the dominant market influence.

Market Forecast: Bearish Near-Term Outlook

Despite today’s slight rebound due to the SPR announcement and technical levels, the broader trend is bearish. Softening demand forecasts, combined with ongoing geopolitical risks, are likely to cap significant gains. Unless there’s a direct supply impact from Middle East tensions, crude oil prices are expected to remain under pressure, with potential for a re-test of recent lows near $65.75. Traders should watch inventory data and geopolitical events for immediate directional cues.