Oil Market Outlook
Oil prices recovered last week amid growing confidence that production cuts will be extended, a position supported by Russia and Saudi Arabia. Some reports suggested that not only would the cuts be extended to March 2018, longer than earlier expected, but they would also be deepened.
Prices were also boosted by the weakening of the US dollar, following a tumultuous week in Washington where President Donald Trump fired his FBI director. A decline in US crude stocks also helped sentiment but the steady rise in US production limited gains.
The price of West Texas Intermediate (WTI) crude rose $2.50 to close at $50.33 per barrel. Brent gained $2.84 to $53.61 and Dubai crude averaged $51.92. Thaioil forecasts WTI this week will move within the range of $48 and $53, while Brent will trade between $50 and $55. Prices are expected to rise if, as expected, production cuts are extended. Declining US inventories should help, but increased US production and a revival of Libyan output could cap gains. Among the factors expected to influence trade:
Opec and non-Opec producers will meet Wednesday and Thursday to finalise their position on reducing output. In the first half of this year their goal was to take 1.8 million barrels per day, or 2% of global output, off the market. It is now believed that the producing countries involved will extend the cuts to March next year, as they try to drive output down to the five-year average to support prices. In addition to Saudi Arabia and Russia, Kuwait, Iran and Venezuela support an extension.
UBS analysts said last week that Opec members would continue to “talk oil higher” and reiterated their forecast that prices would move above $60 later this year as supply growth starts to lag demand growth.
US crude oil inventories continue to fall as refinery run rates are at a five-year high, while gasoline consumption has revived and reached a record high at the start of the summer driving season. Crude stocks in the week to May 12 fell by 1.4 million barrels to 520.8 million barrels, the sixth straight week of declines. Oil production dropped marginally to 9.3 million bpd, but is still up by 10% to since mid-2016.
The market is still concerned about rising Libyan crude production. With the reopening of the El Sharara and El Feel fields, output increased to 800,000 bpd at the end of April, and is expected to pass one million soon. Production could reach 1.2 million bpd by year-end if various conflicts can be resolved, but a major militia attack on an air base last week dimmed that possibility.
US drillers added eight more oil rigs in the week to May 19, bringing the total to 720, the most since April 2015, the energy services firm Baker Hughes said. Shale production is expected to rise for the sixth consecutive month in June to 5.4 million bpd, the highest since May 2015.
Economic indicators to watch include euro zone and US manufacturing and services PMI, US revised first-quarter GDP figures, and US durable goods orders.