Oil Market Outlook

Oil prices jumped late last week on news of a modest output increase agreed on by Opec and its allies including Russia. At around 1 million barrels per day on paper, it is 500,000 bpd lower than market expectations.

Also supporting prices was a big drop in US crude oil inventories by 5.9 million barrels, well beyond forecasts for a decline of 1.9 million, as refinery demand rose.

However, concern about the escalating trade war between the US and China and its potential impact on global economic growth kept a lid on gains.

West Texas Intermediate (WTI) crude rose $3.52 to close at $68.58 per barrel. Brent gained $2.11 to $75.55 and Dubai crude averaged $71.60. Thaioil forecasts that WTI this week will trade between $66 and $71, and Brent between $73 and $78. Prices are expected to stay around current high levels in response to the Opec decision. Renewed conflict that has reduced Libyan oil output should also support the market. Among the factors expected to influence trade:

• The agreement reached by the 24 so-called Opec+ producers to start pumping 1 million more bpd should help offset some of the supply shortage from Venezuela and Iran, which are facing economic problems and US sanctions. However, actual output may rise by only 600,000 to 800,000 bpd as some producers may not be able to reach full quotas.

• A clash between the Libyan National Army (LNA) and a rival group closed the oil terminals of Ras Lanuf and Es Sider and resulted in output cuts of 450,000 bpd last week. However, the National Oil Corp said on Friday that the LNA had regained control of the ports and operations should resume in the “next couple of days”. Libyan crude production in May was 950,000 bpd.

• US crude oil production held steady at 10.9 million bpd in the week to June 15 and is now forecast to reach 11 million in the third quarter. The number of active oil rigs fell by one last week to 862.

• The market continues to watch the US-China trade dispute, with some analysts saying a 25% tariff by China on US oil can’t be ruled out. That would halt US oil shipments and force the US to find new buyers.

• Venezuelan oil exports this month have fallen by 32% from May to around 700,000 bpd. It is a dramatic decline from 1.7 million bpd a year go. Asset seizures to settle debts have left the country unable to transport crude oil to ports. Iran, meanwhile, is losing more customers as countries seek other suppliers to comply with US sanctions that will take effect on Nov 4. Iran’s crude oil exports in June fell 700,000 bpd and are now round 1.7 million bpd.

• US crude oil inventories are expected to continue falling as refineries are operating at nearly 97% capacity to meet driving season demand, while exports in the week to June 15 rose by 300,000 bpd from the previous week to 2.4 million bpd.

• Economic indicators to watch include US durable goods orders, consumer spending and final first-quarter GDP, and China’s Caixin manufacturing and services PMI.

For more information visit www.thaioilgroup.com or download the TOP Energy application for iOS or Android mobile devices.