Oil Market Outlook
Oil prices continued their decline last week as investors are losing hope that production cuts by Opec and non-Opec producers, now extended to March next year, will bring down the global glut as long as US, Libyan and Nigerian output keeps rising. A committee monitoring compliance with the Opec-led pact is reported to be cool to the idea of cutting output any further, as some investors had hoped.
However losses were limited by continuing declines the US crude oil inventories and imports, while gasoline stocks also declined from unseasonably high levels, suggesting US driving-season demand might be improving.
The price of West Texas Intermediate (WTI) crude dropped by $1.73 to close at $43.01 per barrel. Brent fell $1.83 to $45.45 and Dubai crude averaged $44. Thaioil forecasts that WTI this week will move within the range of $42 and $47, while Brent will trade between $43 and $48. Prices are expected to remain flat because of high output in the US, Libya and Nigeria. However, any signals from Opec, however faint, about further reductions could encourage traders. Among the factors expected to influence trade:
The strife that earned two of Opec’s African members an exemption from cuts has eased. Libya is now pumping 885,000 barrels per day, a four-year high, and is expected to reach one million next month. In Nigeria, a major export terminal restarted after a 15-month halt caused by sabotage and will ship 250,000 bpd this month. The reopening of the Trans Forcados oil pipeline is expected to lift exports to a 17-month high of 2 million bpd by August.
Shale oil production in the US continues to rise despite the recent price slump to below the break-even range of $45-50 a barrel. Analysts also point out that the Bakken shale field has even lower break-even costs at around $38. Drillers added 11 oil rigs last week, bringing the total to 758. Only 330 rigs were active in the same week a year ago. US output is expected to reach 9.3 million bpd by year-end and a record 10.0 million next year, from 8.9 million in 2016.
US crude oil inventories are expected to fall further as refinery run rates remain high and imports, mainly from Saudi Arabia, decline. The Energy Information Administration (EIA) said crude inventories in the week to June 16 dropped by 2.5 million barrels to 509.1 million, more than the analysts’ forecasts of 2.1 million.
Opec and its allies are sticking resolutely to their agreement to take 1.8 million bpd, or 2% of world demand, off the market. Opec producers in May achieved 108% compliance and non-Opec compliance rose to 100%.
Further output curbs could be necessary, but reaching a consensus will be difficult unless US production rises faster than expected, Iranian Oil Minister Bijan Namdar Zanganeh said last week. Russia has also indicated that it opposes any additional reductions.
Economic indicators to watch include the final firstquarter US GDP reading, US durable goods orders and personal consumption and euro zone consumer prices.