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Oil Prices Continue to Climb on SPR Refill News

Crude oil prices began trading this week with a gain, extending Friday’s rally as news emerged that the U.S. federal government is buying up to 3 million barrels for the strategic petroleum reserve.

So far, the government has bought 9 million barrels of crude in batches of three, the first steps in the refilling of the SPR after drawing over 180 million barrels last year to stabilize fuel prices.

Prices are right now in the sweet spot of the Department of Energy but it has been a given that prices will jump as soon as the DoE says it’s buying, which is just what happened. Still, WTI remains well below the upper end of the price range that the DoE set itself, which was $79 per barrel.

"We know the Biden Administration is in the market looking to refill the SPR, which will provide support," IG analyst Tony Sycamore said in a note quoted by Reuters.

Another IG analyst told Bloomberg that “Gains are still somewhat capped into the new week on China demand concerns.” Yeap Jun Rong added that the SPR refill news would naturally push prices higher “but whether this marks the ‘true’ floor for oil prices remains to be seen.”

Crude oil prices have been falling for seven weeks in a row, even as OPEC+ announced additional, deeper production cuts to the total tune of 2.2 million bpd, beginning from January, set to last to at least the end of March.

The failure of this move to prop prices up came from a perception of oversupply from traders and expectations that oil demand growth in China is going to slow down next year.

At the same time, reports of record-breaking U.S. production served to reinforce the oversupply concern, especially with demand projections for next year, at least per the IEA, rather pessimistic.

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By Charles Kennedy for Oilprice.com

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