Oil Market Outlook

Oil prices settled lower last week, as indications of ample Russian oil supply offset encouraging US economic growth data, strong refining margins and hopes of a rapid recovery in Chinese demand.

Prices were also subdued by data showing that the US manufacturing purchasing managers’ index (PMI) for January was 46.6, still well below the 50 mark that separates expansion from contraction.

West Texas Intermediate (WTI) crude fell $1.94 to close at $79.68 per barrel. Brent lost $1.53 to $86.66 and Dubai crude averaged $84.26. Thaioil forecasts that WTI this week will trade between $74 and $85, and Brent between $80 and $91. Prices are expected to hold steady amid a steady rise in Chinese demand despite the challenges posed by the current surge of Covid-19 cases. As well, the market expects the Opec+ alliance to stick to its production cuts to support prices. Among the factors expected to influence trade:

■ The US Federal Reserve is expected to raise its benchmark interest rate by 25 basis points when it meets on Tuesday and Wednesday. While inflation in December decreased to 6.5%, the Fed believes higher rates are needed to push inflation down closer to its target of 2%. But high rates also increase the risk of recession, which piles pressure on global oil demand.

■ Opec forecasts global oil demand in 2023 will rise by 2.2 million bpd year-on-year to 101.8 million bpd, with Chinese demand rising by 500,000 bpd to 15.3 million. The Civil Aviation Administration of China forecasts that international flights will reach 80% of prepandemic levels by year-end, spurring jet fuel demand.

■ The Opec+ meeting on Wednesday is expected to affirm a plan to reduce output by 2 million bpd. However, compliance is an issue, and the actual reduction is expected to be 1 million bpd. December production actually rose by 91,000 bpd to 28.97 million bpd.

■ US crude inventories in the week to Jan 20 rose by 500,000 barrels, half as much as analysts had forecast, to 448.5 million. The oil and gas rig count was unchanged last week at 771, 26% higher year-on-year.

■ Record high temperatures have eased worries about an energy crisis in Europe, pushing the TTF (title transfer facility) price down to €65 per megawatthour. In addition, European gas reserves are rising. But extreme cold has hit northeastern Asia, especially northern China where temperatures plunged as low as minus 53C, resulting in surges in coal and gas prices.

■ Economic indicators to watch include China’s manufacturing PMI, expected to be up slightly from the previous month; euro zone manufacturing PMI and inflation, which is forecast to increase to 9.7%.