By Ken Afor
The price of oil increased Monday, continuing its upward trend for a second consecutive session. The rise was attributed to the United States’ ongoing efforts to replenish strategic reserves, which offered some level of support.
However, worries about an excess supply of crude oil and a potential slowdown in fuel demand growth in the coming year remained.
Brent crude futures experienced a 0.6% increase, equivalent to 48 cents, reaching $76.32 per barrel by 0406 GMT.
Simultaneously, U.S. West Texas Intermediate (WTI) crude futures stood at $71.61 per barrel, reflecting a 0.5% rise, or 38 cents.
On Friday, both contracts experienced a significant surge of over 2%.
However, this positive momentum was overshadowed by the fact that they have now recorded seven consecutive weeks of decline, marking their longest stretch of weekly decreases since 2018.
This downward trend can be attributed to persistent concerns regarding oversupply in the market.
Demand for crude oil from the United States has been stimulated by the recent decline in prices. In order to replenish its Strategic Petroleum Reserve (SPR), the U.S. has expressed interest in acquiring up to 3 million barrels of crude oil, with delivery scheduled for March 2024.
“We know the Biden Administration is in the market looking to refill the SPR, which will provide support,” according Tony Sycamore, an IG analyst, adding that technical chart indicators were also contributing to the support of prices.
Despite the commitment made by the Organization of the Petroleum Exporting Countries and allies, (OPEC+), to reduce daily production by 2.2 million barrels in the initial quarter, there is still skepticism among investors regarding the actual decrease in supply.
The projected increase in output from non-OPEC nations is expected to result in surplus supply in the upcoming year.
RBC Capital Markets anticipates a stock decline of 700,000 bpd during the initial six months, while projecting a more modest decrease of 140,000 bpd for the entire year.
“Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts,” RBC analysts said in a note.
The analysts emphasized that the next two months will be characterized by volatility as the cuts will not be implemented until the following month and country level production data will only be available after January. It is during this period that preliminary clarity on quantifiable data on compliance will start to emerge.
The most recent data on the consumer price index in China, the leading importer of oil globally, revealed an increase in deflationary pressures due to a lack of strong domestic demand, which has raised concerns about the country’s economic revival.
Chinese authorities announced on Friday their commitment to boosting domestic consumption and strengthening the economic rebound in 2024.
Investors are closely monitoring the meetings at five central banks, including the Federal Reserve, this week to gain insights into interest rate policies.
