Oil Market Outlook
Oil prices plunged last week as the US inventory glut has become impossible to ignore, negating many of the gains resulting from two months of output reductions by Opec and others.
In addition, prices were affected by reports of lower than expected reductions by Russia, the largest non-Opec oil producer. However, the resumption of conflict in Libya, which has reduced oil output, limited losses.
The price of West Texas Intermediate (WTI) crude decreased by $4.84 to close at $48.49 per barrel. Brent fell $4.53 to $51.37 and Dubai crude averaged $52. Thaioil forecasts that WTI this week will move within the range of $47 and $52, while Brent will trade between $50 and $55. Prices are expected to recover slightly as Opec and non-Opec members meet to review their progress, and on expectations of that official figures for February will show declining Opec output. Falling output in Libya should also support prices, but US inventories and production remain a big concern. Among the factors expected to influence trade:
Opec and non-Opec producers will meet on Friday to review their agreement to take a total of nearly 1.8 million barrels per day (bpd) off the market until June to support prices. Official data for February is expected to show further reductions by 11 Opec members, with Kuwait’s oil minister saying that cuts last month were as much as 140% of the agreed 1.2 million bpd. Opec compliance was already reported at 93% in January, while Iraq, which had been lagging its peers, said its cuts now amounted to 85% of its agreed level level.
Russia is expected to feel some pressure at this week’s meeting as its output reductions have not met expectations. Russia’s energy minister said last week that cuts had now reached 50% of the agreed total or 150,000 bpd. He expressed optimism that the reduction would reach 200,000 bpd in March and 300,000 in April.
Libyan production is declining as the Libyan National Army and the Benghazi Defence Brigades battle to control positions in the east near the critical Es Sider and Ras Lanuf oil ports. The renewal of hostilities has reduced output to 620,000 bpd from 700,000 earlier. In addition, it Waha Oil has cut production to 35,000 bpd.
US crude stocks remain uncomfortably high amid rising shale oil production and low demand from refineries as they carry out maintenance. The Energy Information Administration said stocks in the week to March 3 rose by 8.21 million barrels, far above a forecast 1.9 million, to a record 528.4 million. Crude production increased for a third week to 9.09 million bpd and is projected to reach 9.53 million bpd by the end of this year and 9.73 million next year, according to the latest EIA forecast.
US drillers added eight more oil rigs in the week to March 10, bringing the total to 617, versus 386 a year ago, the energy services firm Baker Hughes said on Friday.
Economic indicators to watch are euro zone consumer prices, US consumer and producer prices, Chinese retail sales and US unemployment claims.