Oil prices finish higher after longest weekly losing streak since 2018

Price action

• West Texas Intermediate crude for January
  CL00,
  -0.29%

  CLF24
  delivery edged up by 9 cents, or 0.1%, to settle at $71.32 a barrel on the New York Mercantile Exchange. Based on the front-month contract, prices ended 3.8% lower last week, according to Dow Jones Market Data. That marked the seventh consecutive week of losses, the longest streak of declines since 2018.

• February Brent crude
  BRN00,
  +0.01%

  BRNG24,
  the global benchmark, climbed by 19 cents, or nearly 0.3%, at $76.03 a barrel on ICE Futures Europe, after losing nearly 3.9% last week.

• January gasoline
  RBF24
  shed 0.3% to $2.04 a gallon, while January heating oil
  HOF24
  gained 1.1% to $2.61a gallon on Nymex.
• Natural gas for January delivery
  NGF24
  lost 15 cents, or 5.8%, at $2.43 per million British thermal units, the lowest finish June 14.

Market drivers

Oil’s gains for the session came from a “combination of near-term oversold conditions in the futures market” after West Texas Intermediate crude tested critical 2023 support in the upper $60s last week, said Tyler Richey, co-editor at Sevens Report Research. Generally improving investor sentiment and risk-on money flows across other asset classes also provided support to oil, he said.

Prices had spent part of the session moving lower as oil traders couldn’t help but take notice over the weekend when China’s official consumer-price index showed prices fell in November at the fastest clip in three years, declining 0.5% on a year-over-year and month-over-month basis, according to data from the National Bureau of Statistics.

Declining prices last month were the latest sign of weakening demand for industrial commodities like oil in the world’s second-largest economy. And with much of Europe either in or near recessionary territory, the outlook for global demand remained grim, Mike O’Rourke, chief market strategist at JonesTrading, told MarketWatch.

“You have China slowing down, you have Europe either in recession or on the cusp of recession, and our economy [the U.S.] has slowed down here, but not as much as other places,” O’Rourke said. “That is why we’re stuck around $70 [a barrel].”

Investors remain skeptical that the OPEC+ voluntary output cuts for the first quarter of 2024 will lead to a significant decrease in supply, Rania Gule, senior market analyst at XS.com, said in market commentary. “This raises expectations of production growth from non-OPEC countries and increases concerns about oversupply in the coming year.”

In a 2024 commodity-market outlook, a team of analysts at RBC Capital Markets said oil has become a “show me” market where traders wait for cuts to materialize before moving to price them in.

“Oil has become a ‘show me’ type market. Prices will remain volatile and directionless until the market sees clear data points pertaining to the voluntary output cuts,” the team said.

Also see: Gas prices may fall below $3 a gallon, a ‘nice surprise’ for holiday travelers

Even an announcement by the U.S. government of plans to buy oil to refill the Strategic Petroleum Reserve wasn’t enough to provoke a sustainable bounce in prices, said Saxo Bank’s Ole Hansen, the bank’s head of commodity strategy.

See: U.S. Energy Department looks to buy more crude oil for the SPR

“Supporting the Monday morning pop was the news the U.S. government plans to buy crude oil for its SPR, but the quantity being mentioned is unlikely to move the focus away from a softening market which will continue to need OPEC+ production-cut unity to avoid a deeper selloff,” he said.

Natural-gas price decline

Natural-gas prices, meanwhile, posted its lowest settlement since June, according to Dow Jones Market Data.

Temperatures that are well above average are expected for most all of the lower 48 U.S. states through Christmas Eve, according to the National Oceanic and Atmospheric Administration’s 8- to 14-day temperature outlook, said Victoria Dircksen, a commodity analyst at Schneider Electric.

“The exceptionally mild temperatures are expected to significantly reduce heating demand across the country,” she said in a daily note. “In addition, production continues to outpace market expectations, flooding the market and pressuring prices lower.”

Still, Beth Sewell, president and chief executive officer at Quantum Gas & Power Services, warned that “when the market falls this hard, this fast, it can also rally at the drop of a hat…but there’s got to be an underlying reason,” such as an updated colder weather forecast or gas pipelines out of service.