Oil Market Outlook
Oil prices reversed two weeks of gains and deepened their weekly decline on Friday after Goldman Sachs said a global supply surplus could force prices as low as $20 a barrel in a worst-case scenario.
Prices were also depressed by China’s economic slowdown, US dollar appreciation, and an American Petroleum Institute report that US oil stocks had risen by 2.1 million barrels to reach 459 million, higher that the analysts’ forecasts, even as production slowed.
Meanwhile, the International Energy Agency (IEA) said crude supplies outside Opec would decline next year by the most in two decades as the price rout curbs US shale output. However, prices gained some support from improved euro zone GDP in the second quarter, showing a gain of 0.4% from the previous quarter and 1.5% from a year earlier.
West Texas Intermediate (WTI) last week dropped by $1.42 per barrel, closing at $44.63. Brent fell $1.47 to $48.14 and Dubai crude averaged $45. Thaioil forecasts that WTI this week will move within the range of $44 and $49 and Brent between $47 and $52. The Federal Open Market Committee meeting on Wednesday and Thursday will command most of the attention, as will economic data from China. Among the factors likely to affect trade this week:
While the Fed is not expected to raise interest rates this week in light of global weakness, many believe US economic conditions are now healthy enough to support a move. Nonfarm employment creation continues to improve and the jobless rate has dropped to 5.1%, close to the Fed’s definition of full employment for the US.
Tensions are rising in the Middle East again after the Islamic State captured the Jazal oil field, the last field under the control of the government of Syria. A middle-sized field northwest of Palmyra, it is close to Syria’s natural gas fields and energy facilities. Although Syria is not a big oil producer, the impact of IS control of production could weigh on the market.
The economic news remains bad in China, the world’s second largest oil consumer. The country’s oil imports fell 13.4% or 6.26 million barrels per day in August, after large buildups of inventories in the previous 2-3 months. Meanwhile, the stock market remains highly volatile despite authorities’ attempts to stabilise prices.
The downward trend in crude prices suggests US output will have to slow down as production is not economically viable. The Energy Information Administration has forecast that US production in 2016 will drop by 400,000 barrels to 8.96 million bpd, down from a peak of 9.61 million earlier this year. The US rig count as of Sept 4 fell by 13 to 662, the first drop after six weeks of continuous increase.
Economic indicators to watch include Chinese industrial production and retail sales; euro zone industrial production and consumer prices, and US retail sales, consumer prices and leading indicators.