Oil Market Outlook
Oil prices fell for a second week as fears of a demand-sapping recession and higher interest rates spurred a broader commodity sell-off. However, concerns over global oil supply tightness kept a floor under prices, as the EU ban on Russian oil imports is moving ahead while the ability of Opec+ countries to increase capacity to compensate for depleted Russian supply remains highly uncertain.
West Texas Intermediate (WTI) crude fell $1.94 to close at $107.62 per barrel. Brent lost $1.01 to $113.12 and Dubai crude averaged $116.33. Thaioil forecasts that WTI this week will trade between $105 and $115, and Brent between $110 and $120. Prices are expected to remain under pressure as investors monitor the response of central banks to inflation, and as a rising US dollar makes oil more costly for holders of other currencies. Among the factors likely to affect trade:
■ US Federal Reserve chairman Jerome Powell said last week that the central bank remains committed to doing whatever it takes to bring down inflation, but he admitted that a recession cannot be ruled out.
■ Oil demand in Japan has recovered almost to prepandemic levels, helped by subsidies to lessen the burden of high prices. Longer-term demand is expected to shrink by 2% a year because of the declining and ageing population, says the energy company Eneos.
■ Refined petroleum exports by China in May fell by 40% from a year earlier because of the impact of lockdowns, as refiners cut capacity in response to reduced domestic economic activity.
■ Crude production in Russia rose by 500,000 barrels per day (bpd) in the first half of June, as China and India increased purchases of Russia oil at highly attractive prices. Moscow expects production capacity will return to pre-sanctions levels in July. But the International Energy Agency forecasts Russian production will decline to 8.7 million bpd by year-end, from 10.5 million in April, as EU sanctions take full effect.
■ US companies are bringing more rigs online, with the total oil and gas rig count rising last week by 13 to 753, the highest since March 2020. The Energy Information Administration forecasts US output will reach 12.43 million bpd in the fourth quarter, higher than the pre-pandemic record of 12.3 million.
■ Following the EU embargo on Russian oil, countries including Germany, Italy and the Netherlands are switching to coal to generate sufficient electricity.
■ Economic indicators to watch include euro zone June inflation, which is expected to rise, US first-quarter GDP, expected to have fallen from the previous quarter, and Chinese producer prices for June.