Oil prices have managed to stabilize after enduring their lengthiest weekly losing streak in five years, a decline fueled by growing indications that supply is outpacing demand. The global benchmark, Brent crude, traded above $76 per barrel following seven consecutive weeks of declines, while West Texas Intermediate (WTI) hovered around $71. A stronger-than-expected US jobs report and plans to replenish the Strategic Petroleum Reserve contributed to a break in the six-day losing streak on Friday.
Despite additional output cuts from OPEC+ and statements from Saudi Arabia and Russia hinting at potential extension of curbs beyond March, oil has witnessed a roughly 20% decline since late September. Surging production outside the OPEC+ alliance, particularly from the US, coupled with anticipated slowing Chinese demand growth and the looming possibility of a US recession, have contributed to the downward trend.
Market strategist for IG Asia Pte., Yeap Jun Rong, remarked, “Gains are still somewhat capped into the new week on China demand concerns.” He added, “The current price level may prompt some replenishing of the US Strategic Petroleum Reserve stockpile, but whether this marks the ‘true’ floor for oil prices remains to be seen.”
Upcoming monthly reports from the International Energy Agency, the Organization of Petroleum Exporting Countries, and the US Energy Department are expected to shed light on the evolving supply and demand dynamics. Investors will also closely monitor the Federal Reserve’s final rate decision of the year.
Amidst the recent market volatility, consumers, including airlines and utilities, have seized the opportunity to secure cheaper barrels. Notably, call spreads traded in Brent have proliferated, mitigating the impact on buyers in the event of a crude price rebound.
However, timespreads continue to indicate weakness, with both Brent and WTI displaying a bearish contango structure in their three-month spreads—where later-dated contracts trade at a premium to nearer ones. Brent’s three-month spread, currently at 17 cents in contango, sharply contrasts with the 86 cents in the opposite, bullish backwardated structure observed just a month ago.
As the energy markets navigate this challenging terrain, the outcome of these various factors and indicators will play a crucial role in determining the trajectory of oil prices in the weeks ahead.
