Oil Market Outlook
Oil prices had their biggest weekly decline since April as the full weight of languishing Chinese demand and more economic tightening radically shifted market sentiment.
New daily Covid cases near record highs in China are testing the resolve of authorities to stick with eased restrictions, and many fear a return to harsh lockdowns that could slow the economy.
However, a larger-than-expected drop in US crude inventories as refining picked up helped to support prices, as did concerns about supply tightness after a pipeline shutdown in Ukraine.
West Texas Intermediate (WTI) crude fell $5.79 to close at $80.08 per barrel. Brent lost $5.52 to $87.62 and Dubai crude averaged $84.49. Thaioil forecasts that WTI this week will trade between $78 and $89, and Brent between $85 and $97. Prices are expected to hold steady as investors assess factors including demand in China, the impact of the latest Opec+ production cuts of 2 million barrels per day (bpd), and movement of the US dollar, which began to strengthen again late last week as Fed officials doubled down on their commitment to more interest-rate increases. Among the factors expected to influence trade:
■ China’s zero-Covid policies are facing their biggest test yet, with a recent rampage by angry residents in a locked-down neighbourhood of Guangzhou alarming authorities. New daily cases now exceed 25,000, though more than 90% are asymptomatic.
■ Energy Aspects forecasts non-Opec oil output will rise by 1.74 million bpd this year to 65.58 million, and by 1.54 million bpd next year, to 67.12 million.
■ US crude inventories in the week to Nov 11 fell by 5.4 million barrels, while fuel stocks rose as refiners lifted output amid high demand and low inventories.
■ Opec crude output in October fell by 210,000 bpd from the previous month, with Saudi production down 15,000 bpd to 10.84 million and Angolan output down 8,000 bpd to 1.07 million bpd. Nigerian production was lower at 1.06 million bpd but the monthly decline narrowed to 30,000 bpd as the Forcados and Brass pipelines resumed operation.
■ Morgan Stanley forecasts a weakening trend for the US dollar in 2023 as the Fed starts to slow the pace of rate hikes and inflation eases. As a result, crude oil futures traded in dollars will be more attractive to holders of foreign currencies.
■ Economic indicators to watch include preliminary November PMI figures for the euro zone and US, with the latter expected to show a slight increase from the previous month.