Oil Market Outlook
Oil prices plunged last week as investors digested a new International Energy Agency (IEA) report predicting that the global oversupply will last until late next year even as demand continues to weaken in a wobbly economy. However, Opec is continuing to pump at record levels to protect market share, and more Iranian crude could add to the glut.
Prices were also pushed down by the stronger US dollar as surveys of economists showed an 80% likelihood that the US Federal Reserve will raise interest rates this week.
However, crude prices gained some positive momentum from a steeper decline in the number of active US exploration rigs, as more producers exit projects that are no longer viable at current prices.
West Texas Intermediate (WTI) crude fell by $4.61 per barrel, closing at $35.36. Brent fell by $5.07 to $37.93 and Dubai crude averaged $35 per barrel. Thaioil forecasts that WTI this week will trade within the range of $35 and $40, and Brent will move between $37 and $42, with all eyes on the Fed meeting. Among the factors likely to influence trade:
The Federal Open Market Committee (FOMC) will meet on Tuesday and Wednesday with a decision due around 2am Thursday Thailand time. Most observers believe the Fed is ready to raise interest rates for the first time since 2006 in light of strong US jobs data and unemployment at a sevenyear low of 5%. There is a slight chance that it might hold fire, having witnessed the hammering that world markets took last week because of the plunge in oil prices, which could signal a more pronounced global weakness that could hurt US economic prospects. Ultimately, higher rates would strengthen the dollar, making oil less attractive to holders of other currencies and lowering prices.
The market is still dealing with the fallout from the Dec 4 Opec meeting, where members who account for about 40% of world output failed to agree on a production ceiling for the next six months. As well, members were not willing to predict how much oil Iran would add to the market.
If the International Atomic Energy Agency is satisfied this week that Iran has met all the conditions it set for the country’s nuclear programme, sanctions will be eased and Iran is expected to ramp up oil production. Analysts forecast that Iran would be able to export between 500,000 and 700,000 bpd more within the first half of next year. It is also looking at developing about 50 new oil and gas projects worth $185 billion over the next five years.
The number of active US oil and gas rigs is sinking faster, with 28 taken out of service in the week to Dec 11, the oilfield services firm Baker Hughes said on Friday. A total of 524 rigs are now seeking oil and 185 exploring for natural gas. The US rig count bottomed out at 488 in 1999
Economic indicators to watch include euro zone industrial production and employment, US consumer prices, industrial production and Conference Board leading indicators.