Oil prices hold as investors still wary
LONDON – Oil prices remained steady on Monday amid ongoing concerns about an oversupply in crude despite production cuts from OPEC+ and softer fuel demand growth projected for next year.
Brent crude futures saw a minor dip of 6 cents, settling at $75.78 a barrel, while U.S. West Texas Intermediate crude futures were down 7 cents at $71.16.
Friday saw both contracts experience a surge of over 2%, but this marks the seventh consecutive week of decline, the longest streak since 2018, due to persistent worries surrounding oversupply.
There is little doubt that the oil complex remains in a state of vulnerability, noted John Evans, an oil broker at PVM, in a Monday briefing.
Investors continue to express skepticism surrounding compliance with the OPEC+ group’s commitment to reducing crude oil production by 2.2 million barrels per day (bpd) in the first quarter. Non-OPEC countries are expected to witness output growth, leading to excess supply next year.
RBC Capital Markets predicts stock draws of 700,000 bpd in the first half of the year, which drops to 140,000 bpd for the full year.
Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts, explained analysts from RBC in a note.
With the implementation of cuts postponed until next month, the next couple of months are set to be turbulent for the oil market until quantifiable compliance data emerges.
The latest consumer price index data from China, the world’s largest oil importer, has indicated mounting deflationary pressures due to weak domestic demand, raising doubts about the nation’s economic recovery.
Chinese officials have pledged to stimulate domestic demand and strengthen the economic recovery in 2024.
This week, investors will closely monitor meetings at five central banks, including the U.S. Federal Reserve, for guidance on interest rate policies. Additionally, U.S. inflation data will be scrutinized to assess its potential impact on the global economy and oil demand.
Weakness in recent prices prompted the United States to seek up to 3 million barrels of crude for the Strategic Petroleum Reserve (SPR) in March 2024.
We know the Biden Administration is in the market looking to refill the SPR, which will provide support, said Tony Sycamore, an analyst at IG.
Meanwhile, a draft climate deal presented at the COP28 summit on Monday outlined various options for countries to reduce greenhouse gas emissions. However, the phase-out of fossil fuels, a demand made by many nations, was notably absent from the proposal.
U.N. Secretary General Antonio Guterres stated that COP28’s success would largely rest on whether it could produce a deal that phased out coal, oil, and gas usage rapidly enough to prevent disastrous climate change.
As uncertainties prevail in the oil market, it is evident that prices will continue to face volatility and challenges until the implementation and effectiveness of the voluntary output cuts become clearer.
Note: The news article has been edited to adhere to AI guidelines in terms of length and format.
