Global oil prices held steady on Monday, with worries about a surplus in crude persisting. This continued despite the attempts of the OPEC+ alliance to limit production and forecasts indicating a slowdown in fuel demand growth in the upcoming year.
At 1427 GMT, Brent crude futures experienced a marginal decline of 6 cents, settling at $75.78 per barrel. Concurrently, U.S. West Texas Intermediate crude futures were down by 7 cents, resting at $71.16. Despite a more than 2% increase in both contracts on Friday, this marked the seventh consecutive week of decline—the longest such streak since 2018—as worries surrounding oversupply continued to linger.
John Evans, an analyst at oil broker PVM, expressed uncertainty about the current state of the oil market, stating in a note on Monday, “There is little doubt that the oil complex remains in a state of vulnerability.”
Despite the OPEC+ group, consisting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC allies, committing to a reduction of 2.2 million barrels per day (bpd) of crude oil production in the first quarter, investor skepticism regarding compliance prevails. The anticipated output growth in non-OPEC countries is expected to contribute to excess supply in the upcoming year.
RBC Capital Markets projected stock draws of 700,000 bpd in the first half of the year, with a modest increase to 140,000 bpd for the full year. Analysts from RBC emphasized the likelihood of continued volatility and directionless price movements until clear data points on the voluntary output cuts become apparent.
With the implementation of cuts scheduled for the next month, the oil market faces a potentially volatile two months before any quantifiable compliance data provides clarity, according to the RBC analysts.
In light of recent developments, the consumer price index data from China, the world’s largest oil importer, indicates rising deflationary pressures due to weak domestic demand, casting doubt over the country’s economic recovery. Chinese officials have pledged to stimulate domestic demand and enhance economic recovery efforts in 2024.
Investors are closely monitoring guidance on interest rate policies from five central banks, including the U.S. Federal Reserve, and U.S. inflation data this week to assess the potential impact on the global economy and oil demand.
Despite recent price weakness, the United States has shown increased demand, seeking up to 3 million barrels of crude for the Strategic Petroleum Reserve in March 2024. Analyst Tony Sycamore of IG noted, “We know the Biden Administration is in the market looking to refill the SPR, which will provide support,” highlighting that technical chart indicators are also lending support to prices.
Meanwhile, at the COP28 summit on Monday, a draft of a potential climate deal outlined various options for countries to reduce greenhouse gas emissions but omitted the “phase-out” of fossil fuels demanded by many nations. U.N. Secretary-General Antonio Guterres emphasized that the success of COP28 would hinge on achieving a deal to phase out coal, oil, and gas use rapidly enough to avert disastrous climate change.
In summation, the consistent resilience in the face of oversupply concerns and market fluctuations highlights the robust nature of the oil industry, as oil prices held steady, pointing towards a cautiously optimistic outlook for the near future.
Source: Reuters
