Oil Market Outlook

Crude oil prices continued their rebound last week as more drilling rigs went out of service in the United States because current prices don’t cover production costs. As well, oil companies including BP and Chevron have announced cutbacks in investment plans. However, with the oil oversupply and an American Petroleum Institute (API) report showing higher inventory volumes, prices continue to be under pressure.

Meanwhile, Saudi Arabia has cut its prices for March oil sales to Asia, a sign that it is continuing to fight for market share. Saudi Arabian Oil Co lowered its official selling price for Arab Light crude by 90 cents to $2.30 a barrel less than Middle East benchmarks, the lowest in at least 14 years

West Texas Intermediate (WTI) prices last week rose by $2.45 per barrel to $50.48, while Brent gained $3.58 to $56.57 and Dubai crude fell to $51 per barrel.

Thaioil forecasts that WTI this week will move within a range of $46 and $51 per barrel, and Brent between $52 and $57. Prices are expected to fluctuate, pressured by the supply glut and a strong US dollar as the US economy steadily improves. However, the biggest strike in 35 years at US refineries could support prices. Among the factors likely to affect trade this week:

The euro zone remains on edge as Greece faces new pressure after the European Central Bank (ECB) said it would no longer accept Greece’s junk-rated bonds as collateral for new funding. The decision has raised concerns over the stability of the euro zone economy and weakened the euro against the dollar.

The United Steelworkers Union (USW) has gone on strike at nine US oil facilities in a dispute over healthcare benefits. The production of the affected refineries accounts for 10% of the country’s capacity, and inventories have increased due to the stoppage. There is also concern that the dispute could widen. A full strike of USW members, employed at some 200 US refineries, terminals, pipelines and chemical plants, could disrupt 64% of US fuel output. The last work stoppage in 1980 lasted three months.

Falling oil prices have forced many producers to cut capital expenditure. Data from the oilfield services company Baker Hughes showed the US oil rig count fell by 94 from the previous week to 1,223 as of Jan 30, a 24% drop since October. As for the investment cutbacks, it is not yet clear whether they will result in a reduced oversupply and higher prices.

Watch for more moves by Saudi Arabia to protect its market share. Bloomberg data has indicated that the Saudis’ share among the top three suppliers to China fell to 37% in December, from 44% in October, as the country lost ground to Angola and Russia.

Economic indicators to be monitored are US retail sales and jobless claims, the euro zone’s fourth-quarter 2014 GDP and consumer prices, and the Chinese producer price index.