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Crude oil prices popped more than 3% Tuesday, recovering some of their steep losses in the previous session, after China’s central bank lowered a key short-term lending rate in an effort to spark its lackluster post-COVID economic recovery.
The People’s Bank of China cut the interest rate on seven-day repurchase operations to 1.9% from 2%, which may in turn guide down China’s benchmark loan prime rate, to be released next week.
Concern over demand from China has been cited as an important factor in crude price weakness this year, but the PBOC’s move prompted traders to latch onto hopes that a more dovish policy could mean stronger growth in the year ahead.
Crude oil then extended its rally after data showed U.S. inflation slowing a bit in May, bolstering the case for the Federal Reserve to pause interest rate hikes at this week’s FOMC meeting.
Front-month Nymex crude (CL1:COM) for July delivery settled +3.4% to $69.42/bbl, bouncing off its lowest settlement in nearly three months, and August Brent crude (CO1:COM) also closed +3.4% to $74.29/bbl, after yesterday posting its lowest close since December 2021.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (DBO), (USL), (DRIP), (GUSH), (USOI), (NRGU)
The U.S. plans to purchase ~12M barrels of oil this year as it begins to refill its depleted emergency reserve amid falling crude prices, Bloomberg reported Tuesday.
Analysts say the Biden administration may look to replenish the reserve in a series of small nibbles rather than big bites, perhaps to minimize upside pressure on crude in the summer driving season.
The 700M-barrel capacity Strategic Petroleum Reserve is at a 40-year low following last year’s 180M-barrel drawdown.
Also, OPEC maintained its forecast for 2023 global oil demand growth steady for a fourth month in its latest monthly oil market report, but warned the global economy faces rising uncertainty and slower growth in this year’s H2.
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