Oil prices continued their upward trajectory on Monday, marking a second consecutive session of gains, as the United States’ move to replenish strategic reserves lent support. However, persistent worries about crude oversupply and subdued growth in fuel demand for the upcoming year lingered in the background.
Brent crude futures climbed 0.6%, or 48 cents, reaching $76.32 per barrel by 0406 GMT, while U.S. West Texas Intermediate crude futures saw a 0.5% increase, or 38 cents, reaching $71.61 per barrel.
Despite Friday’s more than 2% surge, both contracts experienced their seventh consecutive week of declines, marking the lengthiest weekly downturn since 2018, amid lingering concerns about oversupply.
The recent decline in prices prompted the U.S. to step in, with plans to acquire up to 3 million barrels of crude for the Strategic Petroleum Reserve (SPR) by March 2024.
IG analyst Tony Sycamore noted, “We know the Biden Administration is in the market looking to refill the SPR, which will provide support,” adding that technical chart indicators were also contributing to the price support.
While OPEC+ has committed to cutting 2.2 million barrels per day (bpd) of production in the first quarter, investor skepticism persists regarding a substantial drop in supply. Forecasts suggest that output growth in non-OPEC countries will lead to excess supply next year.
RBC Capital Markets anticipates stock draws of 700,000 bpd in the first half but only 140,000 bpd for the entire year. Analysts at RBC emphasized that prices are likely to remain volatile and directionless until the market receives clear data points related to voluntary output cuts.
With the implementation of cuts scheduled for the next month and production data at the country level expected post-January, the next two months are expected to be volatile before preliminary clarity emerges on measurable compliance data.
The latest consumer price index data from China, the world’s leading oil importer, revealed rising deflationary pressures, casting doubt on the nation’s economic recovery due to weak domestic demand. In response, Chinese officials pledged on Friday to boost domestic demand and fortify the economic recovery in 2024.
Investors are closely monitoring central bank meetings, including the Federal Reserve, this week for guidance on interest rate policies. Additionally, U.S. inflation data will be scrutinized for its potential impact on the global economy and oil demand.
Note: The article provides comprehensive coverage of oil price movements, supply concerns, and global economic factors impacting the energy market.
