Oil Market Outlook
Oil had its worst week in more than a month as sentiment for all risk assets was depressed by investors’ concerns about an intensifying trade war between the United States and China.
Further gains in US oil production also pressured the market, but prices were supported by a surprise drop in US crude inventories, helped by record-high crude exports. Also helping prices were figures showing Opec production at an 11-month low.
The price of West Texas Intermediate (WTI) crude decreased by 95 cents to close at $62.06 per barrel. Brent fell 53 cents to $67.11 and Dubai crude closed down at $65. Thaioil forecasts that WTI this week will move between $60 and $65, while Brent will trade between $65 and $70. Prices are expected to hold steady as US crude stocks are likely to decline further, while compliance with output cuts by Opec and its allies remains high. The wild card will be US-China trade tensions, as investors wait to see whether the two sides are ready to negotiate a solution. Among the factors expected to influence trade:
US oil inventories in the week to March 30 fell by 4.6 million barrels, despite forecasts for a 2-million-barrel gain, to 425.3 million. The fall reflected a rise of 0.7 percentage points in refinery tun rates to 93%, and a surge in exports to 2.18 million barrels a day, the highest since Energy Information Administration records began in 1993.
Continued cooperation among Opec and its allies has been reflected in lower Opec output figures for March. Reuters said output fell by 90,000 bpd to an 11-month low of 32.19 million bpd. Declines were seen in Angola and in Libya, where conflict-related shutdowns set back a partial recovery. In cash-starved Venezuela, output fell 1.56 million bpd, a new long-term low. Saudi Arabia also pumped 40,000 bpd less than in February. The result was compliance estimated by Reuters at 159% of agreed cuts.
The alliance between Opec and Russia that has coordinated output cuts could last “indefinitely” and be formalised by setting up a new organisation including other major producers, Russian Energy Minister Alexander Novak said.
While China is responding to US tariff threats by targeting politically sensitive US farm commodities such as soybeans, its list also includes some petrochemicals, indicating it is willing to use energy as a weapon, analysts said. Donald Trump has now asked his officials to find another $100 million worth of Chinese goods to penalise.
US production shows no signs of slowing, with output in the week to March 30 rising by 30,000 bpd to a recordhigh 10.46 million. US drillers added 11 oil rigs last week to a total of 808, the highest since March 2015. Oil explorers are expected to increase spending in the US by 37% to $134 billion this year, assuming an underlying average oil price of $65 a barrel, according to Raymond James & Associates.
Economic indicators to watch include US and Chinese producer and consumer price indices, Chinese exports and euro zone industrial production.