Oil prices are poised for a fourth consecutive weekly decline, tumbling into a bear market despite a slight rebound.
The US benchmark West Texas Intermediate, despite a 2.8% rise on Friday, is still set for a weekly drop of about 3% and remains approximately 20% below its September highs.
This decline is largely attributed to a notable increase in US oil stockpiles, particularly at the Cushing, Oklahoma, storage hub, as refineries reduce crude demand during seasonal maintenance and US production continues to climb.
The International Energy Agency has indicated that this production increase is loosening the global oil market more than anticipated for the current quarter, contributing to price softness. This situation persists despite geopolitical tensions, with traders shifting focus from bullish to bearish options to hedge against further price drops.
Goldman Sachs analysts, including Daan Struyven, suggest that OPEC will intervene to stabilize prices, aiming to keep Brent oil in the $80-to-$100 range in 2024 by managing a moderate deficit and utilizing its pricing power. They attribute the recent price decline to higher-than-expected non-OPEC supply.
The demand outlook remains uncertain, with data from China, the top crude importer, showing reduced refinery processing rates in October, and a rise in US unemployment benefits signaling a slowdown in the largest crude consumer market.
Supply has consistently exceeded expectations, softening real-world barrel prices. Increased shipments from Guyana, the North Sea, and surging US exports are contributing to the supply glut. Algorithm-driven traders have exacerbated the decline, accelerating sales as Brent fell below $80.
The upcoming OPEC+ meeting, featuring key players like Saudi Arabia and Russia, faces a complex scenario. Both countries have committed to maintaining output cuts until year-end, though Russia’s exports have recently increased. The recent price slump is also influenced by technical factors, such as the market entering a bearish contango structure and breaching the 200-day moving average.
Rebecca Babin, a senior energy trader at CIBC Private Wealth, noted the intense selling pressure as macro-driven traders react to deflationary signals, predicting volatile markets and low trading volumes. There’s an expectation that Saudi Arabia and Russia may extend their voluntary output cuts into the first quarter.
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