Oil Market Outlook

Oil had its worst week since the 2008 financial crisis as panic over the coronavirus battered global markets. Futures prices in New York fell 16%, bringing the decline for the year to date to 27% on concerns that the virus outbreak would dent oil demand. Cases have been rising sharply in Iran, South Korea and Italy, and concern is growing in Middle Eastern countries like Kuwait, Bahrain, Oman and Iraq.

Opec and its allies are hoping to reach an agreement to stem the rout as they prepare to meet in Vienna later this week. Saudi Arabia is reportedly pushing for collective production cuts of an additional 1 million barrels per day, on top of the 1.7 million already agreed, with Riyadh shouldering most of the burden.

West Texas Intermediate (WTI) crude fell $8.62 to close at $44.76 per barrel. Brent dropped $7.98 to $50.52 and Dubai crude averaged $49.13. Thaioil forecasts that WTI this week will trade between $44 and $49, and Brent between $50 and $55. Prices are expected to remain low as coronavirus outbreaks hammer economic activity worldwide. Among the factors expected to influence trade:

The International Monetary Fund has lowered its forecast for Chinese GDP growth this year to 5.6% from 6% earlier due to the effects of the outbreak. Goldman Sachs cut its first-quarter US economic growth forecast to 1.2%, from 2.1% in the fourth quarter of 2019, as the first cases have started to appear in the United States.

Opec and its allies are still planning to meet in Vienna on March 5 and 6 despite virus concerns. Markets are hoping they will agree to a deeper output cut of between 600,000 and 1 million bpd. But Opec is still waiting to see whether Russia intends to participate.

Even a million-barrel cut in output might not be enough to revive oil prices, say analysts, who note that conditions would be even worse if Libyan supplies had not been disrupted. Libyan output has fallen to just 120,000 bpd, from 1.2 million late last year, as rebel forces have closed major oil ports and fields in their campaign to topple the Tripoli-based government.

Venezuelan crude supply is expected to fall further, as US President Donald Trump has vowed to be more aggressive in punishing people and companies that violate sanctions. The warning followed US sanctions on the Russian oil company Rosneft for illegally importing crude from Venezuela.

Economic indicators to watch include Chinese and US PMI updates for February and euro-zone consumer prices.

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