OPEC Skepticism Prevails As Oil Prices Eke Out Minimal Gains

But one analyst dismisses demand concerns by citing history: File Image/Pixabay

Monday's oil trading activity was a repeat of recent past sessions, with two key benchmarks eking out minuscule gains as analysts continued to doubt that the Organization of Petroleum Exporting Countries' (OPEC) recent plans for deeper production cuts would offset a perceived softening of demand next year.

Brent settled up 19 cents to $76.03 per barrel, while West Texas Intermediate settled up 9 cents at $71.32.

OPEC and its allies have pledged to cut 2.2 million barrels per day (bpd) of crude production in the first quarter, but Jim Ritterbusch, president of Ritterbusch and Associates, summarized the compliance concerns of his colleagues by stating, "Members participating in the output curtailments are not only seeing reduced revenue from smaller volumes but also from the price plunge that developed subsequent to the last OPEC+ decision."

RBC analysts added in a note, "Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts."

Market angst was not helped by the latest Consumer Price Index data from China, which revealed rising deflationary pressures and weak domestic demand.

The Index dropped 0.5 percent in November on an annual basis, the biggest fall since the early months of the pandemic in 2020; the drop marked an acceleration in the rate of deflation from October and prompted calls for government action from Beijing.

Citi analysts said, "China's deflation situation is deepening with the triple whammy from domestic food prices, international oil price corrections, and weak domestic demand; signs of price weakness are now spreading from goods to services."

For their part, China's Politburo officials vowed to do more to expand demand and spur consumer spending.

Meanwhile, Bloomberg noted on Monday that spreads between monthly contracts, a barometer for supply and demand, continue to indicate market weakness: "Three-month spreads for both Brent and West Texas Intermediate are showing a discount for barrels for nearer-term settlement versus those further in the future, a bearish structure known as contango."

While acknowledging the current headwinds, Corey Stewart, an oil analyst at LSEG, chose to view the market from a more optimistic vantage point.

He said, "I do see the first part of the year starting out a little lower: if we see a weakening economy, it will impact demand and send prices lower.

"But by and large, if you just look at history we have seen petroleum demand growth nearly every single year."