Oil Market Outlook

Oil prices fell last week as US-China trade tensions raised worries about economic growth. Rising crude production by major suppliers and a revival of output in Libya also affected sentiment.

However, the International Energy Agency warned that while world supplies are ample now, ongoing losses in Venezuela and US sanctions against Iran could eventually cut more supply than others can replace.

As well, US crude production has slipped to a two-month low of 10.8 million barrels per day (bpd), as a major pipeline from the Permian field is at full capacity. The industry has warned that President Donald Trump’s tariffs on imported steel and aluminium are pushing up pipeline expansion costs, with possible long-term consequences for US output.

West Texas Intermediate (WTI) crude fell by 86 cents to close at $67.63 per barrel. Brent dipped 40 cents to $72.81 and Dubai crude averaged $70.33. Thaioil forecasts that WTI this week will trade between $64 and $69, and Brent between $69 and $74. Prices are expected to be pressured as US crude stocks rise on higher imports, while output by Opec and its allies continues to increase. However, this could be offset by falling Iranian exports and weakening US production. Among the factors expected to influence trade:

US crude inventories are expected to start rising as imports from the 360,000-bpd Syncrude facility in Canada resume. However, domestic demand remains high with refinery run rates at a two-month high of 96.6%. US crude stocks in the week to Aug 3 fell by 1.35 million barrels.

Opec and its allies continue to adjust their strategy in line with a June agreement to lift production by up to 1 million bpd. Saudi Arabia, Kuwait and the UAE in July increased their production by 170,000 bpd from the previous month, while Russian production is estimated to have risen by more than 200,000 bpd.

Libyan oil production is reviving, but tensions between the fragile government and armed militias persist. Exports have resumed from the 90,000-bpd El Feel field, but disruptions continue at Sharara, with a capacity of 340,000 barrels per day, following the abduction of workers by insurgents.

Aug 23 is the next D-Day in the trade war between the US and China. That is when US tariffs of 25%, raised from 10% earlier, are scheduled to take effect on $16 billion worth of Chinese goods, while Beijing says it will impose the same tax on US$16 billion in US goods.

Oil exports from Iran in July fell by 7% from the previous month to a four-month low of 2.32 million bpd, after Japan, South Korea and European countries reduced orders ahead of the Nov 4 deadline for US sanctions. However, China and India are still buying from Tehran, with orders in July rising by 120,000 bpd. The Trump administration forecasts that it will persuade countries to cut Iranian oil imports by as much as 1 million bpd by November.

Economic indicators to watch include Chinese retail sales and manufacturing PMI, euro zone second-quarter GDP and US retail sales.

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