Oil Prices Stabilize after Longest Weekly Loss in 5 Years

Oil prices stabilized after the longest weekly loss in five years, driven by signs that supply is starting to exceed demand.

Brent crude oil traded above $76 a barrel after recording seven weeks of declines, while West Texas Intermediate (WTI) approached $71.

 A stronger-than-expected US jobs report and plans to replenish the Strategic Crude Oil Reserve helped halt a losing streak that continued for six sessions through Friday.

Oil has fallen by about a fifth since late September, with additional production cuts from OPEC+ and statements by Saudi Arabia and Russia that restrictions could be extended beyond March failing to stem the decline. Production from outside the alliance, especially the United States, is rising, Chinese demand growth is expected to slow next year, and there is a chance of a recession in the United States.

Monthly reports due this week from the International Energy Agency and the Organization of the Petroleum Exporting Countries (OPEC) may provide some clarity on the fundamentals of supply and demand, and investors will also have their eyes on the latest decision on the path of US interest rates for this year.

Consumers, including airlines and utilities, have taken advantage of the recent decline in oil prices to buy barrels more cheaply. The markets experienced a wave of bid spreads in Brent crude trading, which limits the impact of any future rise in crude oil prices on buyers.

Meanwhile, oil spreads continue to show signs of weakness. So far, the three-month futures spreads for both Brent and WTI are experiencing contango (a bearish bearish structure that occurs when futures contracts trade at a premium compared to their nearest-term. 

The decline in the spread of three-month Brent crude futures contracts was 17 cents in the case of contango, compared to an increase of 86 cents in the case of backorder (which is the opposite bullish structure) a month ago.