Oil Market Outlook
Crude oil prices were depressed last week by a rising US oil rig count, concerns about the Chinese economy and lower demand as the US summer driving season tapers off.
As well, the International Energy Agency warned that the global surplus would last through 2016, while Opec said its output was at a three-year high. Non-Opec output also continues unabated despite falling prices. However, diminishing US oil stocks and a dip in the dollar kept a floor under prices, which have fallen nearly 30% since June.
West Texas Intermediate (WTI) crude last week lost $1.37 per barrel, closing at $42.50. Brent fell 42 cents to $49.03 and Dubai crude averaged $49. Thaioil forecasts that WTI this week will move within the range of $42 and $47 and Brent will trade between $47 and $52. The market will keep a close eye on Chinese economic news following last week’s surprise yuan devaluation, as well as US economic data that might point to an interest-rate increase. Among the factors likely to influence trade this week:
The Chinese government has said it does not want to see the yuan depreciate any further, but analysts expect Beijing may be planning more stimulus measures as manufacturing and other indicators remain weak. A weaker yuan may help exports but a bigger concern is that the hoped-for pickup in domestic demand has yet to materialise. China imported record amounts of oil in July, raising hopes that sustained buying may alleviate a glut, but purchases may start to slow again.
The rising surplus from both Opec and non-Opec producers is becoming a bigger concern. US producers put another six rigs into service in the week to Aug 7, even though current prices make production unviable for many shale operators. Commentators believe some of the decisions to add rigs were made back when oil was averaging $60 per barrel.
Opec shows no signs of reining in its output, which reached a three-year high of 31.5 million bpd in July. The major additions were from Iraq and Iran, which ramped up production to 2.86 million bpd, the highest since June 2012.
Concerns have eased in Europe after Greece settled a deal with its creditors for a new bailout of 85 billion euros that will allow it to keep servicing its debts, starting with 3.2 billion due on Thursday.
US dollar appreciation, briefly interrupted last week, will continue to pressure oil prices. Economic indicators remain good, pointing to an interest-rate hike, but probably not until December in light of concerns about China and the global economy. Most Fed members believe employment is close to the target rate although inflation at 2% is still below expectations.
Economic indicators to watch include US housing starts, consumer prices and jobless claims, as well as minutes of the July Fed meeting.