Oil Market Outlook

Crude prices lost ground last week amid concerns over the rising number of Covid-19 cases in many countries, especially in the UK, which could lead to the reimposition of strict lockdown measures.

Investors are also concerned about signs of weakness in the recovery of the global economy, which could be affected further if US legislators cannot agree on new stimulus funds. However, data showing a drop in US crude inventories kept a floor under prices.

West Texas Intermediate crude fell by 86 cents to close at $40.25 per barrel. Brent dipped $1.23 to $41.92 and Dubai crude averaged $42.12. Thaioil forecasts that WTI this week will trade between $37 and $42, and Brent between $39 and $44. Prices are expected to swing lower as many European countries grapple with a new Covid surge, which could lead to reduced travel and economic activity. Meanwhile, supplies could rise as Libya prepares to resume exports after a monthslong conflict that had crippled its oil industry. Among the factors expected to influence trade:

The UK is among the countries seeing a major surge in new Covid cases, with last Thursday’s daily total of 6,644 a record that eclipsed the highs seen in May. The government has imposed strict social distancing measures for six months that include more working from home and 10pm closing times for pubs and restaurants. Meanwhile, the Bank of England warns that the unemployment rate could reach 7.5% by year-end, compared with 4.1% in the second quarter, if there are no additional measures from the government.

Libya’s National Oil Corporation (NOC) has resumed operations at oilfields that had been seized by rebels in January. Three ports have also reopened. The NOC forecast production this week of 260,000 barrels per day (bpd), but that is still well below the 1.2 million bpd produced last year.

The market is expected to gain support from the fall in US crude supplies. Crude inventories in the week to Sept 18 fell for the second week in a row, by 1.6 million barrels. Crude output declined by 300,000 bpd to 10.7 million as a result of the impact of Hurricane Sally, the Energy Information Administration said. It estimated a further drop of 100,000 bpd for the week to Sept 25 because of tropical storm Beta, which had started to weaken over the weekend.

Economic indicators to watch include China’s September manufacturing purchasing managers’ index, which is expected to be lower than in August; eurozone September inflation, which is likely to be higher than in August; and US final Q2 GDP and September non-farm payrolls, which are expected to have dipped.

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