Oil Stabilizes Below $70: Should You Expect a Rebound Anytime Soon?

• Oil prices break losing streak following OPEC+ meeting
• OPEC+ reaffirmed production cut commitment, expecting prices to recover
• Refilling the U.S. Strategic Petroleum Reserve may help buoy prices, but only slightly

After three straight days of losses, oil finally broke its losing streak on Thursday. Traders fled the oil market after the recent failures of California-based banks SVB and Signature Bank, and the crisis with Credit Suisse (SIX:CSGN) (NYSE:CS) triggered fears that a cascade of bank failures could bring on a recession.

By the end of trading on Wednesday, Brent had fallen by 10% and WTI by just over 14% for the week.

But then the OPEC+ finally took some action. Russia’s Alexander Novak flew to Riyadh to meet with the Saudi oil minister and Prince Abdulaziz bin Saud to discuss oil markets.

They did not even discuss changing OPEC+’s production agreement and instead reaffirmed their commitment to the current production agreement, which includes a cut of 2 million bpd that will last through December 2023.

Later, several OPEC delegates told reporters that the OPEC+ assessment of the situation was that the price drop was financial in nature -- and not an issue of supply and demand. OPEC+ expects that prices will recover soon.

The question is, how soon?

Additionally, the United States has an opportunity here to start refilling its Strategic Petroleum Reserve. The Biden administration drained much of the SPR last year and earlier this year when they sold off hundreds of barrels of oil from storage in an attempt to bring gasoline prices down before the Midterm elections.

The Biden administration previously committed to refilling the SPR with oil from American companies when the price of WTI dropped below $67 per barrel. On Wednesday, WTI traded at a low of $66.47.

Refiling the SPR now, or at least starting to, might help prop up oil prices because it takes supply off the market. However, if OPEC+ is correct and the decline is purely financial, then reducing supply probably won’t help push up oil prices that much. The SPR is an ineffective tool for price management, but a well-timed announcement about buying oil might help oil break out of its current milieu.

However, even if the Biden administration did purchase oil for refilling the SPR, this announcement would probably only push prices up a very small amount. After all, OPEC+ was only able to get a 1% increase with its comments.

The U.S. is not in the business of managing oil markets. However, the SPR needs to be refilled as summer approaches because the likelihood of an event requiring an SPR sale is higher in the summer.

If the price of WTI stays under $68 for a few weeks, traders should look for SPR purchases that may buoy prices slightly.

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Disclosure: The author does not own any of the securities mentioned in this article.