Oil Market Outlook
Oil prices rose last week on signs of tightening supply and the prospect for improved Chinese demand, despite downward pressure on markets from more interest-rate increases.
Prices were supported by a suspension of the Keystone pipeline in the US following a major leak. But data showing a large rise in US crude inventories, coupled with the Federal Reserve’s warning that interest rates would go higher to fight inflation, limited gains.
West Texas Intermediate (WTI) crude rose $1.12 to close at $74.29 per barrel. Brent gained $1.05 to $79.04 and Dubai crude averaged $76.54. Thaioil forecasts that WTI this week will trade between $69 and $81, and Brent between $73 and $85. Prices are expected to rebound as Chinese economic activity picks up now that zero-Covid restrictions have been abandoned. However, the market is closely watching Russian oil exports now that a price cap has taken effect. Among the factors expected to influence trade:
The US Energy Information Administration forecasts global oil demand this year will average 100.83 million bpd, down from 101.74 million projected in April, reflecting weakening economic conditions and the impact of zero-Covid policies in China. However, it sees demand improving by 1 million bpd next year with Asian consumption returning to pre-pandemic levels.
US crude inventories in the week to Dec 9, rose by 10.2 million barrels, compared with forecasts for a reduction of 3.6 million, the EIA said. At 424.1 million barrels, inventories are about 6% below the five-year average for this time of year.
China said retail sales in November contracted by 5.9% year-on-year, higher than forecasts, as Covid curbs took their toll. The industrial production index rose 2.2%, down from a 5% gain in October.
Concerns over supply tightness in the US are easing following the resumption of operations on the Keystone pipeline carrying crude from Canada. A spill in Kansas, the worst leak in the 12-year history of the pipeline, dumped the equivalent of 14,000 barrels.
Russian oil exports are in the spotlight now that the EU is enforcing a price cap of $60 per barrel. Shipping, financial and insurance services for Russian oil cargoes will be terminated if the cap is exceeded. However, Russian Espo crude exported to China is still trading higher than the cap, though Urals grade crude is trading at $41.60 and is being bought heavily by India.
Economic indicators to watch include US thirdquarter GDP, which is expected to show 2.9% quarterly growth after a contraction of 0.6% in the previous quarter, and updated euro zone inflation figures.