Oil Market Outlook

Oil prices jumped to a 2-year high after Opec and its allies surprised the market by agreeing to keep their production cuts unchanged into April. Saudi Arabia also extended its voluntary cuts of 1 million barrels per day (bpd) into next month.

Prices were also supported by the progress of Covid19 vaccinations and the $1.9-trillion US stimulus package. However, gains were capped by a record risee in US crude inventories, as refineries are taking longer than expected to restart after the deep freeze in Texas.

West Texas Intermediate (WTI) crude rose $4.59 to close at $66.09 per barrel. Brent gained $3.23 to $69.36 and Dubai crude averaged $66.54. Thaioil forecasts that WTI this week will trade between $61 and $66, and Brent between $64 and $69. Prices are expected to remain high amid growing optimism about the recovery, following forecast-beating US job growth. However, higher output by US producers seeking to take advantage of high prices could limit gains. Among the factors expected to influence trade:

⯀ Saudi Arabia has persuaded fellow producers that oil demand is not yet strong enough to justify lifting output by 500,000 bpd, the Opec+ alliance had been expected to do earlier. The aggregate cut of 7.05 million bpd will remain in effect into April, with the Saudis adding another 1 million bpd to the total. Russia and Kazakhstan won approval for small increases, bringing the net supply cuts to 7.9 million bpd. The group will review the numbers again on April 1.

⯀ Goldman Sachs now predicts the Brent benchmark could reach $80 by the third quarter, and Citigroup says crude could top $70 before the end of this month.

⯀ The US Senate over the weekend was closing in on a vote on the $1.9-trillion stimulus package, which needs to be finalised before current pandemic unemployment aid expires on March 15.

⯀ The number of new Covid cases continues to decline thanks to active vaccination programmes, with nearly 300 million jabs delivered in 111 countries so far. The US now expects to have enough vaccines for every adult American before May, two months earlier than previously scheduled, and many countries in Europe are preparing to step up economic activity.

⯀ Production in Texas is gradually recovering, but the huge jump in inventories of 21 million barrels in the week to Feb 26 underscored the problems refiners were facing. The US rig count last week rose by one to 403, following a gain of five the week before.

⯀ Economic indicators to watch include US jobless claims, euro zone fourth-quarter GDP and January industrial production, and an ECB meeting.