By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices ticked up on Tuesday, reversing a more than 2% drop earlier in the session, as markets weighed U.S. government's plans to refill the nation's emergency oil reserve and anticipated higher seasonal demand.
Brent crude settled 43 cents, or 0.6% higher, at $77.44 a barrel, while U.S. West Texas Intermediate (WTI) crude closed up 55 cents, or 0.8%, at $73.71.
Both benchmarks had fallen about 2.5% earlier in the session after two days of gains.
Biden administration plans to begin purchasing oil to replenish the Strategic Petroleum Reserve helped cover speculative short positions, said Robert Yawger, executive director of energy futures at Mizuho.
Energy Secretary Jennifer Granholm has said the administration could start buying back crude oil for the Strategic Petroleum Reserve late this year after President Joe Biden last year directed the largest sale yet from the stockpile.
A report from the Energy Information Administration (EIA) pointing to higher seasonal demand and lower-than-expected output also supported prices.
"We expect the seasonal rise in oil consumption and a drop in OPEC crude oil production to put some upward pressure on crude oil prices in the coming months," the Energy Information Administration said in its Short-Term Energy Outlook.
The EIA also forecasts U.S. crude production will rise 5.1% to 12.53 million barrels per (bpd) day this year, but lowered its output estimate for this year and next from previous forecasts.
It cut its estimate for Brent and WTI prices by more than 7% each to $78.65 and $73.62 a barrel, respectively.
U.S. crude oil inventories rose by about 3.6 million barrels in the week ended May 5, according to market sources citing American Petroleum Institute figures on Tuesday, compared with analysts' estimate for a drawdown of about 917,000 barrels.
Prices were held back, however, by data that showed China's imports contracted in April, while exports rose at a slower pace, implying weak domestic demand.
Markets were also monitoring U.S. President Joe Biden and top Republican lawmakers' comments on raising the $31.4 trillion U.S. debt ceiling, fearing an unprecedented default if Congress does not act in three weeks.
U.S. consumer price index (CPI) figures for April are due to be released on Wednesday and could determine the Federal Reserve's next interest rate decision.
New York Fed President John Williams said inflation remains too high and that the central bank will raise rates again if necessary, even though the U.S. central bank dropped guidance about the need for future hikes.
While doubts about the economy could weigh on markets, crude prices were supported as wildfires prompted oil producers in the Canadian province of Alberta to shut in at least 319,000 barrels of oil equivalent per day, more than 3.7% of Canada's output.