Oil prices held just above their lowest levels in five months, with fears of oversupply highlighted after OPEC+ pledges to extend and deepen production cuts failed to halt the decline in prices.
Brent crude, the global standard, was trading around $76 a barrel after rising 2.7% over the previous two sessions, while West Texas Intermediate crude was above $71. Doubts about OPEC+ alliance members' full commitment to the latest round of voluntary cuts, coupled with rising production from non-OPEC suppliers including the United States, have raised fears of a widening surplus.
The spread between contract prices for different tenors continues to indicate that supply is outpacing demand, with the Brent and WTI futures curve returning to a bearish contango - in which prices of longer-dated contracts rise above closer-dated contracts - until the middle of next year.
The six-month spread for benchmark Brent crude was 18 cents a barrel in contango, near the lowest level in a year. The price was $1.66 per barrel in a bullish backorder just one month ago.
Oil prices have fallen over the past seven weeks, the longest such period since 2018, and have fallen by about a fifth since late September. As for demand, Chinese consumption growth is expected to slow next year, and there is a chance of a recession in the United States.
Citigroup said OPEC+ would need to extend production curbs throughout the entire next year just to keep prices in the $70 to $80 per barrel range.
If OPEC+ implements its voluntary supply cuts and global oil inventories shrink, oil prices are likely to find some fundamental support, said Vivek Dhar, an analyst at Commonwealth Bank of Australia. However, the path of global oil demand also remains controversial, he added.
Traders will be monitoring several market data scheduled for release this week. The Energy Information Administration will release its short-term outlook on Tuesday, followed by OPEC the next day and the International Energy Agency on Thursday. The final interest rate decision for this year is also scheduled to be issued by the Federal Reserve tomorrow, Wednesday.
