Oil Market Outlook

Oil prices rallied last week after Russia warned it might cut output by as much as 700,000 barrels per day in response to sanctions on its crude. Prices were also supported by data showing US crude inventories fell more than expected. Severe cold weather across the US pushed up heating fuel demand but was also expected to curb Christmas travel.

West Texas Intermediate (WTI) crude rose $4.37 on the week to close at $79.56 per barrel. Brent gained $4.12 to $83.92 and Dubai crude averaged $77.95. Thaioil forecasts that WTI this week will trade between $74 and $84, and Brent between $78 and $88. Prices are expected to remain steady on high heating demand and improving Chinese economic activity. But trade is typically light in the week between Christmas and New Year. Among the factors expected to influence trade:

„ ■ China is reportedly planning to end the quarantine requirement for travellers from abroad as it continues to dismantle zero-Covid. However, the end of restrictions has brought a sharp rise in cases. The vast majority are are mild but hospitalisations and deaths are on the rise, though accurate figures are hard to find.

„ ■ The World Bank has lowered its forecast for Chinese GDP growth this year to 2.7% from 4.3% previously, and predicts 3.8% expansion next year, down from 4.3% predicted earlier, as Covid persists. The People’s Bank of China has vowed to apply the necessary monetary policies to stabilise economic growth next year.

„ ■ Russia may reduce its oil output by 500,000 to 700,000 barrels per day in early 2023 in response to the G7-backed price cap of $60 on its crude exports, Deputy Prime Minister Alexander Novak warned, raising concerns about supply tightness.

„ ■ The Bank of Japan surprised markets last week by adjusting its yield curve control policy, essentially widening the band in which bond yields can move. This is expected to pave the way for an end to ultra-easy monetary policy sometime next year. A policy rate of -0.1% has kept the yen weak and helped exports but it is pushing up inflation and hurting consumers.

„ ■ Oil demand in Asia is expected to increase amid colder temperatures than usual. In Japan, forecasters say temperatures over the new Year period will be 33% lower than the average.

„ ■ The Keystone pipeline carrying oil from Canada to the US is expected to resume normal operations on Dec 29 after being closed since Dec 7 due to a spill of 14,000 barrels in Kansas, easing concerns over supply tightness.

„ Economic indicators to watch include US unemployment and industrial production data for November.