Investing.com -- Oil bears — as well as energy policy makers in the U.S. government — can heave a sigh of relief that the planned refill of the country’s oil reserve has barely made an impact on the price of crude. They can also thank the dollar and U.S. bond yields for that.
Crude futures spiked briefly in the previous day’s post-settlement trading on media reports that the Strategic Petroleum Reserve is to be replenished, with the Department of Energy later confirming an initial planned purchase of 3 million barrels. From its Monday settlement of $71.11 per barrel, West Texas Intermediate reached a session high of $71.78 Tuesday. That was how far the bulls really got.
By Tuesday’s close, WTI was down 25 cents, or 0.4%, at $70.86 per barrel versus the previous day’s rally of 1.5%.
London-traded Brent crude, the global benchmark for oil, settled down 32 cents, or 0.4%, at $74.91 versus Monday’s 1.4% run-up.
“Crude prices remain heavy as the dollar refuses to break,” said Ed Moya, analyst at online trading platform OANDA. “The global economic outlook has too many question marks and that is not giving energy traders a lot of confidence in buying crude. Right now too much oil is still available and we aren’t seeing meaningful triggers to make the market tight over the short term.”
Moya said he expected the oil market to get tighter as the SPR is refilled and as China’s economic recovery — now slower than expected — unfolds in a bigger way.
“The initial start of refilling the SPR with 3M (NYSE:MMM) will have a small effect on physical markets but it should help provide some support around the $68-70 a barrel region,” Moya added, providing a forecast at the lower end of oil bulls’ expectations.
Investors fled to the relative safety of the dollar and U.S. Treasuries on Tuesday after mixed U.S. economic data that showed retail sales and the housing index holding up.
The Dollar Index steadied above 102 and the yield on the 10-year U.S. Treasury note hit a two-week high of 3.572%. The two instruments rose as the U.S. debt crisis dragged on without an agreement between President Joe Biden and his Republican rivals on raising the country’s ability to pay for its obligations ahead of what would be its first debt default by June 1.
Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.
The API will release at approximately 16:30 ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended May 12. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.
For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 0.920M barrels, versus the 2.951M barrel rise reported during the week to May 5.
On the gasoline inventory front, the consensus is for a draw of 1.060M barrels over the 3.168M-barrel decline in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.
With distillate stockpiles, the expectation is for a build of 0.057M barrels versus the prior week’s deficit of 4.170M. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.