Oil Market Outlook
Oil prices rose last week despite a sell-off on Friday after poor US retail sales data suggested the recovery and fuel demand will remain weak. But prices were supported by Saudi Arabia’s plan for a voluntary output cut of one million barrels per day (bpd) on top of its quota in February and March in order to maintain market balance amid weaker demand due to lockdown measures in many countries.
West Texas Intermediate crude rose $1.53 to close at $52.36 per barrel. Brent gained 72 cents to $55.10 and Dubai crude averaged $55.48. Thaioil forecasts that WTI this week will trade between $49 and $54, and Brent between $52 and $58. Prices are expected to be supported by optimism about the $1.9-trillion stimulus announced by President-elect Joe Biden, who will take office on Wednesday. But the sluggish rollout of vaccinations in many countries remains a concern, as the Covid pandemic shows no signs of abating. Among the factors expected to influence trade:
As part of its output cuts, Saudi Arabia will reduce supplies to refiners in Asia in February. Two North Asian refiners will see a 10% supply cut, while allocations for three Indian refiners will be cut by 15-26%.
Opec+ will maintain its cuts of 7.2 million bpd through March, which will lessen concern about an oversupply at a time when economic activity is slowing. But Russia and Kazakhstan plan to lift output by 75,000 bpd in February and 150,000 bpd in March.
Investors have hailed the $1.9-trillion “American Rescue Plan” announced by President-elect Biden. But even with Democratic Party control of both houses of Congress, Mr Biden will still face opposition from Republicans to parts of the stimulus legislation.
The number of active US oil and gas rigs rose last week by 13 to 373, the highest total since May, but still 53%, below this time last year. US crude stockpiles in the week to Jan 8 fell more than expected, by 3.2 million barrels to 482.2 million. Fuel demand remains low, with the four-week average of gasoline products supplied down 11% year-on-year.
The International Energy Agency (IEA) will update its 2021 oil demand forecast tomorrow. In its December update, the IEA predicted demand would grow this year by 5.69 million bpd, down from an earlier forecast of 5.8 million. Demand in 2020 was fell by an estimated 8.8 million bpd. The US Energy Information Administration last week cut its 2021 demand forecast to 5.56 million bpd from 5.78 million earlier.
Economic indicators to watch include Chinese fourth-quarter GDP and December retail sales, a European Central Bank meeting and euro zone inflation.
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