Oil Market Outlook
Oil prices were pressured last week by a rise in US crude oil stocks as exports fell by 1.4 million barrels per day from the previous week. As well, output increases by Opec and non-Opec producers have now made up for shortfalls in Venezuela, Iran and Libya.
However, losses were limited as Iran began a naval exercise in the Strait of Hormuz, through which 30% of the world’s seaborne crude passes, apparently in response to more belligerent rhetoric from Donald Trump.
Meanwhile, Barclays Plc has warned of “significant upside risk” for oil prices as sanctions begin to affect Iranian exports, while conflict in Libya and sliding Venezuelan production take a further toll.
West Texas Intermediate (WTI) crude fell 20 cents last week to $68.49 per barrel. Brent shed $1.08 to $73.21 and Dubai crude averaged $71. Thaioil forecasts that WTI this week will trade between $66 and $71, and Brent between $70 and $75. Prices are expected to fall as a resumption of imports from Canada could push up US crude stocks. Support could come from concern about shipments through the Bab El-Mandeb strait and falling Iranian shipments. Among the factors expected to influence trade:
The 360,000-bpd Syncrude facility in Canada is expected to resume normal production late this month after an upgrade. Resumed shipments to the US could push up inventories and pressure oil prices. US stocks in the week to July 27 rose by 3.8 million barrels, against analysts’ forecast for a 3-million-barrel decline.
Compliance with production cuts by Opec and its allies fell to 111% in July, from 135% earlier this year, as top players including Saudi Arabia and Russia pumped more oil to make up for shortfalls elsewhere. Saudi Arabia, Kuwait and the UAE have lifted output by a combined 170,000 bpd.
Libyan exports should increase as the Zueitina and Hariga ports have resumed normal operation. Partial operations have also resumed at Ras Lanuf and Es Sider but more maintenance is required on damaged oil storage tanks. However, the 160,000-bpd Sharara field remains offline following the abduction of workers by insurgents.
Houthi rebels have announced a temporary cessation of activities in the Bab El-Mandeb Strait off Yemen until next week. Their earlier attack on two Saudi crude carriers prompted Riyadh to suspend shipments through the strait. If oil cannot move through the strait, deliveries of some 500,000 bpd will have to be transported around southern Africa, increasing shipping times and costs.
The US-China trade war continues to intensify, adding to concerns about global economic growth and oil demand. Washington last week threatened to apply 25% tariffs on Chinese exports worth US$200 billion, instead of the 10% planned earlier, and Beijing has vowed to respond in kind. The new tariffs would take effect in September if the two sides do not reach an agreement.
Economic indicators to watch include Chinese and US producer price and consumer price indices.