Oil Market Outlook
Oil prices were pressured last week by falling US demand as storm Harvey closed refineries and pipelines. However, prices were supported by a larger-than-expected fall in US crude stocks as other refiners remained busy. The weakening US dollar also helped prices.
US gasoline prices fell on Friday for the first time in two weeks, after rising 20% after refineries in Texas started shutting down. Harvey halted up to 24% of the country’s refining capacity, meaning less fuel is being produced than normal.
West Texas Intermediate (WTI) crude decreased by 58 cents to close at $47.29 per barrel. Brent gained 34 cents to $52.75 and Dubai crude closed at $49. Thaioil forecasts that WTI this week will move within the range of $47 and $52, while Brent will trade between $49 and $54. Prices are expected to fall slightly as US demand will remain weak until more refineries come back online. However, prices should be supported by declining output in Libya where rebel activity has flared up again, and by lower exports from some Opec producers. Among the factors expected to influence trade:
The decline in US crude stocks is expected to persist amid weaker demand for transport fuel and the impact of Harvey on refiners. Inventories fell sharply even as refineries hiked output in the run-up to Harvey’s approach, the Energy Information Administration said. Stocks in the week to Aug 25 fell by 5.39 million barrels to 457.77 million, the lowest since January 2016. It was the ninth weekly decline.
Monitor the gradual reopening of refineries, pipelines and other facilities as Texas begins to recover from the devastation wrought by storm Harvey. The overall capacity of the refineries that were temporarily shut down was about 4.4 million barrels per day, or 24% of the total capacity of all US refineries. The federal government released 1 million barrels of crude from the Strategic Petroleum Reserve to a Louisiana refinery, the first emergency release in five years. On Friday it authorised a further release of 3.5 million barrels.
Fresh turmoil in Libya has reduced crude production capacity by 360,000 barrels per day, after rebels shut down pipelines from El Sharara, El Feel and Hamada, causing the fields to suspend operations.
The number of active US oil rigs is likely to decline in the aftermath of Harvey, as it will take some time to resume activity at some flooded fields including Eagle Ford which has a capacity of 1.4 million bpd. No new rigs were added last week, the oilfield services firm Baker Hughes said.
Middle East producers including the United Arab Emirates are trimming exports in order to comply with Opec output cuts. Abu Dhabi National Oil Company has told its customers it was cutting allocations by 10%. Iraq said its oil production was now 4.3 million bpd, making it more than 100% compliant with its agreed Opec cuts. A Reuters survey found that Opec crude production declined in August by 170,000 bpd from July to reach 32.83 million bpd.
Economic indicators to watch include euro zone second-quarter GDP, US and euro zone services PMI and euro zone retail sales.