Oil Market Outlook
Oil prices declined last week as Opec decided to maintain its output at 30 million barrels per day, which will exacerbate the global supply glut. The decision on Friday was a foregone conclusion, and in any case members of the cartel have already exceeded the threshold, with current output estimated at 31.6 million bpd. High output from non-Opec producers including the United States and Russia has also depressed prices.
Prices received some support, however, from declines in US oil stocks, which have now fallen for five straight weeks, for a total reduction of 13.5 million barrels. A modest reduction in the number of active US drilling rigs also helped keep a floor under prices.
The price of West Texas Intermediate declined last week by $2.30 per barrel, closing at $58. Brent fell by $3.53 to $62.03, and Dubai crude eased back to $61. Thaioil forecasts that WTI this week will move within the range of $56 and $61 per barrel, while Brent will move between $61 and $66. Traders this week will monitor fallout from Opec’s decision, as well as Greek debt negotiations and euro zone economic activity. Among the key factors likely affect trade this week:
Opec producers are counting on oil demand to recover in the second half but the oversupply could continue to weigh on prices, especially if Iran increases output. Successful talks between Iran and world powers on Tehran’s nuclear programme later this month could lead to the removal of more sanctions. Iran’s oil minister said at the Opec meeting that his country would increase production by one million bpd within months of sanctions being lifted.
Greek Prime Minister Alex Tsipras declared on Friday that his country will not accept euro zone creditors’ “absurd” demands for even more austerity in exchange for bailout funds. That increases the possibility of a debt default by Athens, which was already given some breathing space by the IMF when it said Greece could defer all four of its scheduled debt repayments totalling 1.6 billion euros until June 30.
US crude stocks continue to decline. The Energy Information Administration said inventories fell by a greater-than-expected 1.9 million barrels to 477.4 million in the week to May 29. Stocks at the Cushing terminal in Oklahoma fell by 1 million barrels to 59 million, signalling rising demand for the June-August driving season.
Increasingly attractive prices at $60-65 per barrel could encourage US producers to resume output, which could push prices down. The oilfield services firm Baker Hughes said the rig count in the week to May 29 fell by 13 to a fiveyear low of 646, but the pace of decline is the slowest since early April. Rig numbers have fallen 60% since last June and are now believed to have bottomed out.
Economic indicators to watch this week include US jobless claims, retail sales and manufacturing price index, Chinese inflation, retail sales and manufacturing data, and the euro zone Markit PMI.