Oil contract prices stable despite worry about oversupply

London — Oil prices held steady on Monday as US efforts to replenish strategic reserves provided support, though concerns persist about oversupply and softer fuel demand growth in 2024.

Brent crude futures edged up 2c to $75.86 a barrel by 9.13am GMT. US West Texas Intermediate crude futures were up a single cent at $71.22.

Both contracts jumped more than 2% on Friday but were down for a seventh straight week, their longest streak of weekly declines since 2018, on lingering oversupply concerns.

The recent price weakness drew demand from the US, which has sought up to 3-million barrels of crude for the Strategic Petroleum Reserve (SPR) in March 2024.

“We know the Biden Administration is in the market looking to refill the SPR, which will provide support,” IG analyst Tony Sycamore said in a note, adding that prices were also being supported by technical chart indicators.

Despite the Organisation of the Petroleum Exporting Countries (Opec) and allies, together known as Opec+, having pledged to cut 2.2-million barrels per day (bpd) of production in the first quarter, investors remain sceptical about compliance. Output growth in non-Opec countries is expected to lead to excess supply in 2024.

RBC Capital Markets expects stock draws of 700,000 bpd in the first half, but only 140,000 bpd for the full 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.

With cuts not implemented until next month, oil faces a volatile two months before clarity from any quantifiable compliance data, the analysts said.

The latest consumer price index data from China, the world’s biggest oil importer, showed rising deflationary pressures as weak domestic demand cast doubt over the country’s economic recovery.

On Friday, Chinese officials pledged to spur domestic demand and consolidate and enhance the economic recovery in 2024.

This week investors are watching for guidance on interest rate policies from meetings at five central banks, including the US Federal Reserve, as well as US inflation data for their effect on the global economy and oil demand.

In the longer term for crude, UN Secretary-General Antonio Guterres on Monday said that one key to success of the COP28 climate summit was for nations to reach agreement on the need to phase out fossil fuels, albeit with countries possibly moving at different rates. 

Reuters