Oil Market Outlook
Oil prices made big gains last week after Opec surprised the market by agreeing on its first output cut in eight years. Members set a production ceiling at 32.5 million to 33.0 million barrels per day (bpd), about 750,000 bpd lower than current levels, but quota allocations must still be decided at the next meeting on Nov 30.
Prices were also supported by declining US crude inventories for a fourth consecutive week. The Energy Information Administration said stocks in the week to Sept 23 fell by 1.9 million barrels to 502.7 million on lower import volumes, against a forecast increase of 3 million barrels.
However, gains were capped by rising export volumes from Libya and Nigeria. Libyan production has increased to 485,000 bpd from 360,000, after the Ras Lanuf port resumed normal operations.
West Texas Intermediate (WTI) last week rose by $3.76 to $48.24 per barrel. Brent rose by $4.30 to $50.19 and Dubai crude averaged $45. Thaioil forecasts that WTI this week will move within the range of $45 and $51, while Brent will trade between $46 and $52. Prices are expected to remain high in light of the Opec decision and tighter US supplies. But expect some pressure from rising output by Libya and Nigeria. Among the factors expected to influence trade:
If Opec can enforce a production ceiling of 32.5 million bpd, it will result in an immediate restoration of balance to the market and a price jump. A cap of 33 million bpd means the market will not be balanced until the second half of next year. Members still have to agree on new quotas at a meeting on Nov 30. Keep in mind that Iran, Nigeria and Libya have been exempted from the agreement. Iraq, meanwhile, wants to be able to pump as much oil as possible to earn desperately needed funds.
US imports remain low at 7.8 million bpd, and domestic oil production has been declining steadily since early this year, lending support to prices. Output is now around 8.7 million bpd, down from a peak above 9.4 million last year, and forecasters expect production to average 8.5 million bpd next year, even if more rigs are put back into service.
Libya hopes to keep increasing oil output now that its key export ports have resumed operation, with a year-end target of 900,000 bpd, compared with 485,000 bpd now. Nigeria’s state oil company, meanwhile, is preparing to resume Forcados and Que Iboe crude exports this month, which could lift output by 500,000 bpd, barring fresh attacks on pipelines and other facilities by militants.
US shale oil output is expected to increase as prices rise close to production costs at $50 per barrel and encourage drillers to put more rigs into service. Baker Hughes said the number of rigs in the week to Sept 30 rose by seven to reach 425, for the 13th increase in the past 14 weeks. In the third quarter, oil drillers added 95 rigs, the most since the first quarter of 2014.
Economic indicators to watch include Markit euro zone manufacturing and services PMI, US ISM manufacturing and non-manufacturing PMI, nonfarm payrolls and unemployment.
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