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Oil prices bounce back as anticipation grows for the replenishment of the US strategic reserve

Following three consecutive days of decline, oil prices surged on Thursday amid investor expectations of the United States, the world’s largest consumer of crude oil, initiating the replenishment of its strategic reserve, which is seen as a stabilizing factor for prices.

However, prices experienced a more than 3% drop on Wednesday, reaching a seven-week low after the US Federal Reserve decided to maintain interest rates, potentially constraining economic growth for the year and curbing the increase in oil demand.

Additionally, an unexpected rise in US oil reserves and signs of a potential ceasefire between Israel and Hamas, which could ease concerns about supply disruptions in the Middle East, exerted downward pressure on crude prices.

By 0400 GMT on Thursday, Brent crude futures for July had risen by 48 cents, or 0.6%, reaching $83.92 per barrel. Meanwhile, June prices for US West Texas Intermediate (WTI) oil increased by 46 cents, or 0.6%, reaching $79.46 per barrel.

Hiroyuki Kikukawa, president of NS Trading, a division of Nissan Securities, noted that the oil market was supported by speculation that the US would take steps to replenish its strategic reserves if WTI fell below $79.

The United States has expressed its intention to refill the Strategic Petroleum Reserve (SPR) at a price of $79 per barrel or less following a significant sale from the emergency stockpile in 2022.

Expectations for a ceasefire agreement between Israel and Hamas in the Middle East heightened after increased pressure from Egypt.

Despite the US position and a warning from the United Nations about the potential consequences of an attack on the southern Gaza city of Rafah, Israeli Prime Minister Benjamin Netanyahu has pledged to proceed with the operation.

Vandana Hari, founder of oil market analysis company Vanda Insights, suggested that as the effects of the US crude stockpile increase and the Fed’s indication of prolonged higher interest rates become apparent, attention will shift to the outcome of the Gaza negotiations. She anticipates a downward bias in crude prices as long as optimism regarding a ceasefire prevails.

The US Energy Information Administration (EIA) reported a 7.3 million barrel increase in crude inventories to 460.9 million barrels during the week ending April 26, surpassing analysts’ expectations of a 1.1 million barrel draw in a Reuters poll. This marked the highest crude stock level since June.

Despite maintaining interest rates on Wednesday, the US Federal Reserve expressed concerns about recent weak inflation data and signaled its inclination to eventually reduce borrowing costs. Any delay in rate cuts could impede economic growth and dampen oil demand.

However, prices may find support from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, continuing to curb supply. Analysts at Citi Research anticipate that OPEC+ will maintain output cuts through the second half of the year when they convene on June 1.

Nevertheless, they noted in a statement that if prices approach the bullish scenario of $90-100+, OPEC+ may consider easing cuts, thus imposing a soft ceiling on oil prices.

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