Oil Market Outlook

Oil prices endured a rough ride last week, sinking nearly 8% on Thursday as news of more US tariffs against China raised the risk of a deeper global economic slowdown.

However, the market was supported by the Fed interest-rate cut, as the US dollar fell and investors shifted to other assets including commodities. As well, US crude inventories fell more than expected, and Libyan oil output was constrained by a pipeline outage.

West Texas Intermediate (WTI) crude lost 54 cents on the week to close at $55.66 per barrel. Brent shed $1.57 to $61.89 and Dubai crude averaged $60.22. Thaioil forecasts that WTI this week will trade between $52 and $57, and Brent between $59 and $64. Prices are expected to rise amid concern about tight supply as tensions persist in the Strait of Hormuz, while US sanctions curb Iranian shipments. Among the factors expected to influence trade:

With tensions rising with Iran, the US and Britain have been seeking European support to bolster patrols around the Strait of Hormuz, a vital oil supply route. But France, Germany, Italy and Sweden have declined to respond to a British request for a European escort force, and Germany has refused outright to join US-led patrols. None wants to be drawn into a war.

Iranian crude supply continues to drop as tougher US sanctions take hold. China, a major customer, cut its orders by almost 60% in June from a year earlier. In the first six months of this year, China’s imports of Iranian crude fell by 30% to 450,000 bpd. Overall Iranian production dropped by 70,000 bpd last month to 2.21 million bpd, according to a Bloomberg survey.

Libya’s crude supply fell after the National Oil Company (NOC) declared force majeure on the Sharara field because of a problem with the pipeline linking it to the Zawiya oil terminal. Sharara is Libya’s largest oilfield, with a capacity of 290,000 bpd.

While the Federal Reserve cut its benchmark interest rate last week to support the US economy, chairman Jerome Powell said more cuts were unlikely. However, if US-China trade tensions worsen and new tariffs take effect on Sept 1, the Fed may have to cut rates again as insurance against a slump.

US crude supply is back to normal as Gulf of Mexico production recovers from Hurricane Barry. Output in the week to July 26 rebounded to 12.2 million bpd from 11.3 million the week before. Crude inventories fell by 8.5 million barrels, far exceeding forecasts for a decrease of 2.6 million.

Economic indicators to watch include US manufacturing PMI, Chinese trade figures and consumer prices.