Oil prices staged a rebound after a tumultuous period but are poised to conclude the week with the most prolonged downward streak since 2018, raising concerns over a global surplus. Despite a surge that saw the global benchmark Brent nearing $76 per barrel, it is steering towards its seventh consecutive weekly decline. West Texas Intermediate, hovering around $71, has faced an 11% setback over the last six sessions. The prevailing trend reflects in time spreads, as they languish in bearish contango structures well into the middle of the coming year, with near-future contracts trading at a discount compared to their later counterparts.
The skepticism surrounding the efficacy of deeper supply cuts proposed by OPEC+ contributes to the persisting woes. The Organization of Petroleum Exporting Countries and its allies witnessed a continuous slide in crude prices since their meeting last week, despite expressing intentions to implement more substantial reductions. The market’s doubt persisted even as major oil-producing nations, including Saudi Arabia, Russia, and Algeria, hinted at the possibility of extending the curbs beyond March.
The response from the market has led analysts at Macquarie, including Marcus Garvey and Vikas Dwivedi, to question the confidence of bullish investors. In a note, they highlighted signals suggesting doubts about the effectiveness of OPEC+ policies, a hesitancy to bet against the decade-long growth of the U.S. shale industry, and a possible reconsideration of the structural underinvestment thesis.
Amid these concerns, there is a growing apprehension about demand trajectories. According to a Bloomberg survey, Chinese oil consumption is anticipated to grow by 500,000 barrels per day in the coming year, a figure significantly lower than the increase observed in 2023. Conversely, in the United States, economists are foreseeing the onset of a recession in the next year.
Despite the skepticism surrounding oil, the U.S. dollar received a boost from better-than-expected payrolls data. However, this did not dampen the recovery rally in the oil market on Friday.
In conclusion, the modest rebound in oil prices offers a glimmer of optimism amid persistent market challenges, suggesting a potential shift in sentiment and a tentative recovery for the energy sector. Notably, average retail motor fuel prices in the United States have plummeted to the lowest levels in a year, according to data from the American Automobile Association. As the oil market navigates through uncertainties, these developments hold implications not only for the energy sector but also for broader economic indicators and policy considerations.
Source: Bloomberg
