Oil Market Outlook
Oil prices advanced for a third straight week as demand remained resilient despite the impact of the fast-spreading Omicron coronavirus variant on economic activity, while supply remained tight.
Prices were supported by a continuing decline in US crude inventories. And while the Opec+ alliance will lift output in February by 400,000 barrels per day, some members are struggling to meet their quotas.
West Texas Intermediate (WTI) crude rose $3.69 to close at $78.90 per barrel. Brent gained $3.97 to $81.75 and Dubai crude averaged $80.69. Thaioil forecasts that WTI this week will trade between $76 and $81, and Brent between $79 and $84. Prices are expected to remain high amid heavy demand in Europe, where supplies of gas from Russia remain inconsistent, causing power producers and industries to seek alternative fuels. Among the factors expected to influence trade:
Opec and its allies believe Omicron will have only a short-term impact on the oil market, and have stuck with their plan to lift February output by 400,000 bpd. But that figure might not be reached as some members are struggling. Libyan production is once more threatened by political strife, Nigeria is facing disruptions at loading facilities, and violent protests in Kazakhstan could affect oil output there. In Ecuador, pipeline erosion reduced output in December to just 80,000 bpd from normal levels of 470,000 bpd.
China’s Ministry of Commerce has granted crude oil import quotas to 42 private refineries totalling 109 million tons, down 11% from a year ago. Forty percent of the allowance went to three big companies, as authorities crack down on tax evasion and emissions by small independent “teapot” refiners.
The US oil and gas rig count rose last week by two to 588, 63% higher than at the same time last year, the energy services firm Baker Hughes said. The rig count has now been rising for a record 17 months in a row.
US crude stockpiles fell in the week to Dec 31 but gasoline inventories surged by the most in 18 months, as supplies backed up at refineries due to reduced fuel demand at the end of the year. Crude inventories fell by 2.1 million barrels to 417.9 million, compared with analysts’ expectations for a drop of 3.3 million barrels.
The latest Reuters survey of analysts’ forecasts shows Brent crude prices will average $71.38 per barrel this year, down 2% from the previous forecast in November of $73.31, reflecting the impact of Omicron outbreaks at the beginning of 2022.
Economic indicators to watch include Chinese trade and consumer prices for December, and US December retail sales.