Oil Prices Steady as US Strategic Reserves Replenishment Provides Support
Oil prices remained stable on Monday, with support coming from the US government’s efforts to replenish strategic reserves. However, concerns about oversupply and softer fuel demand growth in the coming year continue to linger. Brent crude futures saw a marginal increase of 2 cents, reaching $75.86 per barrel, while US West Texas Intermediate crude futures rose by a single cent to $71.22.
Weekly Declines Continue Amid Oversupply Concerns
Both Brent crude and US West Texas Intermediate crude experienced their seventh consecutive week of declines, marking their longest streak since 2018. Lingering concerns about oversupply in the market have contributed to this downward trend.
US Efforts to Replenish Strategic Reserves Provide Support
The recent weakness in oil prices prompted the United States to seek up to 3 million barrels of crude for the Strategic Petroleum Reserve (SPR) in March 2024. This move by the Biden Administration to refill the SPR is expected to provide support to oil prices. Analysts also highlight the role of technical chart indicators in supporting prices.
OPEC+ Production Cuts Raise Skepticism
Despite the Organization of the Petroleum Exporting Countries (OPEC) and its allies committing to cut 2.2 million barrels per day (bpd) of production in the first quarter, investors remain skeptical about compliance. Non-OPEC countries’ output growth is anticipated to contribute to excess supply in the coming year.
Volatility Expected Until Clear Data on Output Cuts
RBC Capital Markets predicts stock draws of 700,000 bpd in the first half of the year but only 140,000 bpd for the entire year. The market is likely to experience volatility and lack direction until clear data points regarding voluntary output cuts are observed. The implementation of these cuts is scheduled for next month.
Chinese Economic Recovery and Oil Demand
China, the world’s largest oil importer, recently released its consumer price index data, indicating rising deflationary pressures due to weak domestic demand. This development raises doubts about the country’s economic recovery. Chinese representatives have pledged to stimulate domestic demand and strengthen the economic recovery in 2024.
Impact of Central Bank Meetings and Inflation Data
Investors are closely monitoring meetings at five central banks, including the US Federal Reserve, for guidance on interest rate policies. Additionally, US inflation data is expected to provide insights into its impact on the global economy and oil demand.
Conclusion:
While oil prices have stabilized with the US government’s efforts to replenish strategic reserves, concerns about oversupply and softer fuel demand growth persist. The market awaits clear data on voluntary output cuts and closely observes global economic factors that could influence oil prices in the coming months.
