Oil Market Outlook
The oil market was pressured last week by continuing concerns over the potential of a Brexit-induced global economic slowdown, which could affect demand for crude oil. Prices fell further after data showed that June production by Opec rose another 250,000 barrels per day (bpd) to a record 32.82 million as the cartel continued its efforts to keep market share.
However, a steady decline in US crude oil inventories as refiners absorbed more supply to meet summer driving demand helped keep a floor under prices. A rally on Friday was also driven by strong US job growth suggesting the economy of the world’s largest oil consumer was healthy.
West Texas Intermediate (WTI) last week fell $3.58 per barrel, closing at $45.41. Brent fell $3.59 to $46.76 and Dubai crude averaged at $44. Thaioil forecasts that WTI and Brent will trade this week between $44 and $49. Prices are expected to remain depressed by rising supplies as Libya prepares to resume exports, while Nigerian output has improved. Among the factors likely to influence trade:
The Libyan National Oil Corporation has reached an agreement with rebels who control the east of the country where a prolonged conflict has reduced oil production to 300,000 bpd since last year. Output has been falling since 2011 when it was 1.6 million bpd. However, the government now believes it can restore production to reach 700,000 bpd by year-end. It also expects to soon resume exporting from the Es-Sider and Ras Lanuf ports, capable of handling 560,000 bpd combined, now that Islamic State fighters have been driven out.
Prices close to $50 per barrel continue to tempt US producers. The number of oil rigs in service in the week to July 7 rose by 10 to 351, the energy services firm Baker Hughes said. It was the fifth gain in the last six weeks. Analysts at UBS say they believe the rig count bottomed in late May at 316, and they forecast US oil production will bottom out in February 2017 at about 7.73 million bpd. The nine-month lag reflects the time it takes to put a new well into service.
The Nigerian government says production has recovered from a 30-year low of 1.34 million bpd to between 1.8 million and 1.9 million bpd after repairs to pipelines damaged by the Niger Delta Avengers. However, a ceasefire has already collapsed and the militants last week attacked a Chevron pipeline and production platform as well as two Italian-owned oil installations.
US oil inventories continue to decline as refineries process more fuel to meet driving demand. The Energy Information Administration (EIA) said inventories for the week to July 1 fell for a sixth week by 2.2 million barrels to 524.4 million. It said production slumped to 8.43 million bpd, the lowest level since May 2014.
Economic indicators to watch include Chinese producer and consumer prices and second-quarter GDP, US producer and consumer prices and consumer sentiment.