Oil Market Outlook
US oil prices fell last week amid concerns about the impact of US-China trade tensions on global oil demand. The prospect of Opec adding more output than the market can absorb also hurt sentiment.
However, Brent crude rallied as workers at a North Sea platform operated by Total of France confirmed they would strike today, idling capacity of 50,000 barrels a day. As well, a larger-than-expected drop in US crude inventories limited losses of West Texas Intermediate (WTI).
Also supporting prices was the suspension of Saudi shipments through the Bab-al-Mandeb strait after an attack on two Saudi tankers there.
WTI ended the week down $1.77 at $68.69 per barrel. Brent gained $1.22 to $74.29 and Dubai crude averaged $73. Thaioil forecasts that WTI this week will trade between $67 and $72, and Brent between $71 and $76. Prices are expected to be steady in light of tensions over Bab-al-Mandeb and falling Venezuelan output. However, a possible rise in US crude stocks as refinery activity slows could pressure prices. Among the factors expected to influence trade:
Saudi Arabia has suspended shipments through the Bab-al-Mandeb strait after Houthi rebels in Yemen attacked two tankers, each carrying 2 million barrels, last Wednesday. A full closure of the shipping route located off Yemen would force tankers from Saudi Arabia, Kuwait, Iraq and the UAE to sail around southern Africa, adding to transit times and costs. An estimated 4.8 million bpd of crude oil and refined products flowed through the strait in 2016.
The Venezuelan economy is heading from bad to worse, with the IMF predicting hyperinflation of 1 million percent this year, further complicating efforts to revive oil production. Crude output in June was 1.3 million bpd, down from an average of 1.9 million last year.
US crude oil stocks are expected to start rising as refinery distillation rates have fallen for four consecutive weeks, from 97.5% to 93.8% as of July 20. Crude inventories in the week to July 20 fell by 6.15 million barrels, twice as much as analysts had forecast, to a three-year low of 404.9 million. The market expects stocks to be pushed up once exports resume in August, a month ahead of schedule, from the 360,000-bpd Syncrude facility in Canada.
Traders will monitor production increases by Opec and its allies to offset the loss of supplies from Venezuela and Iran, as the US takes a hard line on sanctions against the latter. Saudi Arabia in June raised output by 458,000 bpd to reach 10.49 million. Russia lifted its capacity by a similar amount to average 11.21 million bpd in the first half of July.
The US appears to have made peace with Europe over trade but tensions with China persist. President Trump continues to threaten tariffs on up to US$500 billion in Chinese goods by September. That could hurt a lot of countries, especially the US, and curb oil demand.
Economic indicators to watch include euro zone secondquarter GDP, producer and consumer prices and unemployment, and US non-farm payrolls and unemployment.