Oil Prices Head for Seventh Weekly Loss
Global Supply Surplus and Weak Chinese Demand
Oil benchmarks are facing a seventh consecutive week of decline due to concerns over a surplus in global supply and a decrease in Chinese demand. However, prices saw a slight recovery on Friday after Saudi Arabia and Russia urged more OPEC+ members to participate in output cuts.
Price Recovery and Market Analysis
At 0913 GMT, Brent futures were up $1.93, or 2.6%, at $75.98 a barrel, while U.S. West Texas Intermediate crude futures rose by $1.82, or 2.6%, to $71.16 a barrel. The recent drop in prices reflected an oversupply in the market, with both benchmarks reaching their lowest levels since late June. Additionally, the market structure showed a contango, where front-month prices traded at a discount to prices further out.
OPEC+ Agreement and Market Impact
The weakening position of OPEC+ in providing support, coupled with record high US production and sluggish Chinese import figures, has led to an abundance of available oil. Saudi Arabia and Russia have called for all OPEC+ members to join an agreement on output cuts, following a recent fractious meeting of the producers’ club.
Production Numbers and Market Outlook
Despite OPEC+ members’ pledges, total production from OPEC+ countries is expected to drop by only 350,000 bpd from December 2023 into January 2024. Some countries may not adhere to their commitments due to muddied quota baselines and dependence on hydrocarbon revenues.
Market Trends and Forecasts
Brent and WTI crude futures are on track to experience their biggest losses in four weeks, with a 3.9% and 4% decline, respectively. Chinese customs data showed a 9% drop in crude oil imports in November, while US output remained near record highs of more than 13 million bpd, according to U.S. Energy Information Administration data.
Monetary Policy and Economic Indicators
The market is also anticipating monetary policy cues from the official U.S. monthly job report, which is expected to show improving job growth and moderately increasing wages. This would solidify views that the U.S. Federal Reserve is done raising interest rates this cycle.
