Oil prices managed to rebound slightly after a torrid run but are still poised to endure their longest weekly losing streak since 2018. Lingering concerns about a global glut, coupled with skepticism over the effectiveness of deeper supply cuts by OPEC+, have cast a shadow over the energy markets.
The global benchmark, Brent crude, displayed signs of recovery as it approached $76 a barrel; however, it remains on track for a seventh consecutive weekly drop. Meanwhile, West Texas Intermediate found itself trading near $71, having witnessed an 11% retreat over the past six sessions. The prevailing bearish sentiment is reflected in widely watched timespreads, entangled in contango structures through the middle of next year, with more immediate contracts trading at a discount to their later counterparts.
Despite robust US payrolls data that surpassed expectations and bolstered the dollar, the positive impact on oil’s recovery rally remained limited. Crude oil prices have witnessed a continuous decline since the recent meeting between the Organization of Petroleum Exporting Countries (OPEC) and its allies. The market responded with skepticism to OPEC’s plans for deeper production cuts, especially in the face of booming supply elsewhere, notably in the US.
Even statements from major producers, including Saudi Arabia, hinting at the possibility of extending production cuts beyond March, failed to reverse the downward trend. Macquarie analysts, including Marcus Garvey and Vikas Dwivedi, expressed reservations about the bullish outlook, citing skepticism about the effectiveness of OPEC+ policies. They also noted a surprising reluctance to bet against US production growth, a trend that has persisted for roughly a decade in the US shale industry.
Adding to the complex dynamics, concerns about the trajectory of demand loom large. A Bloomberg survey indicates that Chinese consumption is expected to grow by 500,000 barrels a day next year, a stark contrast to the increase seen in 2023. In the US, economists are apprehensive, predicting a potential recession starting next year.
The prolonged decline in oil prices, along with related products like gasoline, is anticipated to provide relief for central bankers grappling with inflationary pressures. According to data from the American Automobile Association, average retail motor fuel prices in the US have plummeted to the lowest in a year. This downturn may offer central bankers a silver lining as they navigate the challenging economic landscape.
As oil markets grapple with their longest weekly losing streak, the future remains uncertain, prompting industry experts and investors alike to closely monitor developments in hopes of discerning whether a turnaround or further decline lies ahead.
Source: Bloomberg
