Oil Market Outlook
Oil prices fell last week as tensions eased in the Middle East after the United States chose economic sanctions over military retaliation against Iran. Crude prices gained some support from the signing of the phase-one trade deal between the US and China.
But optimism about the trade truce was offset by signs that oil product supplies remain plentiful, with recordhigh crude output and unexpectedly large stockpiles of petrol and distillates in the US.
West Texas Intermediate (WTI) crude fell 50 cents to close at $58.54 per barrel. Brent slid 13 cents to $64.85 and Dubai crude averaged $64.75. Thaioil forecasts WTI this week to trade between $55 and $60, and Brent between $60 and $65. Prices are expected to remain healthy as markets expect a positive impact on the global economy and oil demand from the US-China pact. Falling Opec output will also help, but high US production remains a concern. Among the factors expected to influence trade:
The market will be looking for positive signs now that the US and China have resolved some of their differences on trade. While China has agreed to import $54 billion worth of energy products, including crude oil, domestic demand is a concern. The Chinese economy grew by 6.1% last year, in line with forecasts but still a three-decade low. Meanwhile, sources in Washington say serious talks for a phase-two trade deal may have to wait until after the November election.
US crude inventories in the week to Jan 10 fell by 2.5 million barrels, more than the forecast of 500,000 barrels. But traders were concerned by a big build-up of petrol and distillate stocks, totalling 14.9 million barrels. The Energy Information Administration said crude output reached a record 13 million barrels per day and forecast average output for this year at 13.3 million bpd. That compares with 12.2 million bpd in 2019. US oil drillers last week added 14 rigs.
The International Energy Agency says global markets have a “solid base” of inventories and rising supplies from outside Opec, which could cushion the impact of any disruption in Mideast supplies. The IEA also left its global crude demand growth forecast for 2020 unchanged at 1.2%.
The market expects Opec to consider extending its deeper output cuts, originally due to end on March 31, until June 30, in order to maintain price stability.
Economic indicators to watch include monetary policy meetings by the Japanese and European central banks, and an update on interest rates from the Chinese central bank.