Oil Market Outlook

Oil prices completed their third monthly advance despite losing ground last week, as the market remained concerned about new outbreaks of Covid-19 that could result in fresh movement restrictions and curb fuel demand.

Diplomatic tensions between the US and China also weighed on sentiment, as did concern about higher output by Opec and its allies, after three months of deep cuts that helped stabilise prices.

West Texas Intermediate (WTI) crude fell $1.02 on the week to close at $40.27 per barrel. Brent shed 3 cents to $43.31 and Dubai crude averaged $43.25. Thaioil forecasts that WTI this week will trade between $38 and $43, and Brent between $40 and $45. Prices are expected to move within a narrow band as the number of new Covid-19 cases rises, especially in the US. However, easing of lockdown measures in some other countries could help oil demand. Among the factors expected to influence trade:

Production cuts by Opec and its allies are expected to average 7.7 million barrels per day (bpd) from August through December, compared with 9.7 million or about 10% of world output in May, June and July. The immediate impact of the increased production will be minimal, as demand actually began to exceed supply in July for the first time since the pandemic began.

Covid-19 cases worldwide continue to rise by as many as 300,000 per day, sparking renewed concern in many countries that had begun to get the outbreak under control. Parts of England have been locked down again, and more travel curbs and quarantine measures are expected in Europe. In the US, cases have topped 4.5 million and deaths exceed 153,000, with more states looking to tighten their control measures.

US consumer confidence dropped to 92.6 in July from 98.3 in June, reflecting growing unease about the economy. The $600 weekly unemployment payments that helped millions of Americans survive expired on July 31, and lawmakers so far have not approved anything to take their place. GDP shrank by a record 32.9% year-on-year in the second quarter. Investors also remain sceptical about the second $1-trillion fiscal stimulus plan intended to help get students back to school and workers back to work.

US crude inventories in the week to July 24 fell by 10.6 million barrels to 526 million, far more than forecasts for a drop of 1.2 million. But petrol inventories rose, which could reflect weakening fuel demand.

Economic indicators to watch include US confirmed payrolls, manufacturing and non-manufacturing PMI for July, and euro-zone retail sales for July.

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