Oil prices extend gains on US initiatives to refill strategic reserves

December 11, 2023 (MLN): Global oil prices started the week in the green zone, extending gains from the previous session, buoyed by U.S. initiatives to refill strategic reserves, although concerns of weak demand and excess supply prevailed over the market.

Brent crude is currently trading at $76.07 per barrel, up by 0.23% on the day.

While West Texas Intermediate crude (WTI) is trading at $71.48 per barrel, up by 0.17% on the day.

It is crucial to mention that prices marked their seventh consecutive weekly decline last week, the longest losing streak witnessed in half a decade, driven by concerns about weak demand and excess supply.

The recent price weakness drew demand from the U.S., which has sought up to 3 million barrels of crude for the Strategic Petroleum Reserve (SPR) for delivery 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 Organization of the Petroleum Exporting Countries and allies, together called OPEC+, having pledged to cut 2.2 million barrels per day (bpd) of production in the first quarter, investors remain skeptical that supply will drop.

Output growth in non-OPEC countries is seen leading to excess supply next year.

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 seems clear data points pertaining to the voluntary output cuts," RBC analysts said in a note.

With cuts not implemented until next month and country-level production data to follow after January, it will be a volatile two months before there is preliminary clarity on quantifiable data on compliance, the analysts added.

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

Chinese officials pledged on Friday they would 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 Federal Reserve, and data on U.S. inflation, for their impact on the global economy and oil demand.

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