Oil prices post seventh weekly drop amid supply glut and weak China demand

Analysts expect prices to continue the downward trend

A petrol station in Shanghai. China's November oil imports declined 9 per cent on an annual basis. EPA

Oil prices rose sharply on Friday, but still posted their seventh consecutive weekly decline amid concerns about a global supply glut and weak demand from the world's top crude importer China.

Prices rebounded after Saudi Arabia and Russia, the world's two biggest oil-exporting countries, on Thursday called on all members of the Opec+ group to join an output cut agreement to support the global economy.

Brent, the benchmark for two thirds of the world’s oil, rose 2.42 per cent to settle at $75.84 a barrel. West Texas Intermediate, the gauge that tracks US crude, added 2.73 per cent to close at $71.23 a barrel.

Oil prices tumbled on Thursday, with Brent closing 3.8 per cent lower to settle at $74.30 and WTI down 4.1 per cent to close at $69.38. During the session, they hit $74.05 and $69.34, respectively – their lowest marks since late June.

Despite the rebound on Friday, analysts said crude prices are expected to sustain their downward trend. Markets are also keeping an eye on a key US jobs report, expected on Friday.

“There's still plenty of momentum with the sell-off so it could get worse before it gets better,” Craig Erlam, a senior market analyst at Oanda, wrote in a note.

Last week, Opec+ members extended their voluntary oil output reductions until the end of the first quarter of 2024 amid concerns over future fuel demand.

Saudi Arabia, the world's largest oil exporter, will keep its voluntary output cut of one million barrels per day until the end of March. The UAE and Russia will also deepen their crude production cuts.

In total, the group revealed supply reductions of almost 2.2 million bpd for the first quarter.

Following Opec+'s move, analysts had suggested the market was “disappointed” by the decision, as it fell short of expectations – and this sentiment would continue unless a clear strategy was pitched, they said.

“The oil markets have reacted poorly to the new production curbs announced on November 30 by Opec+, with global benchmark Brent losing almost 10 per cent of its value over the past week alone,” said analysts at BMI, a unit of Fitch Solutions.

“A failure to reach consensus on new production quotas for 2024, poor communication in the wake of the meeting and concerns over compliance with the deal in the first quarter have all weighed heavily to the downside.”

Oil prices, which briefly touched $98 in September, have since fallen by around 16 per cent, despite predictions of a tight crude market in the fourth quarter by the International Energy Agency and Opec.

Crude jumped at the start of the Israel-Gaza war in October on concerns that it would escalate into a broader conflict in the region, which is responsible for about a third of the world's oil production.

However, supply concerns have eased, in part due to higher oil production in Iran and the easing of sanctions on Venezuela.

Prices are also being weighed down by worries of slow demand growth in the US and China, the world's biggest consumers of crude.

Demand in China, in particular, is expected to slow down next year, as the robust post-pandemic activity that helped prop up its economy has begun to fade.

The world's biggest importer of crude is projected to consume an additional 500,000 barrels a day in 2024, according to estimates from Bloomberg.

Moody's Investors Service on Tuesday also warned of a downgrade to China's credit rating, citing that bailout costs for state firms and the property sector crisis are dragging the economy. It lowered its outlook to negative from stable.

China's November oil imports declined 9 per cent on an annual basis on weak orders and tepid economic indicators, customs data showed.

Crude output in the US, meanwhile, remained near record highs of more than 13 million bpd, the Energy Information Administration said on Wednesday.