Oil Market Outlook
Oil prices rose modestly last week, held back by a strong US dollar and doubts about whether all Opec producers would stick to a deal to cut output. Trading was choppy because of position-squaring and low volumes in the first week of the year.
Prices were supported by a huge drawdown in US crude stocks of 7.1 million barrels, compared with analysts’ forecasts of 2.2 million. Also helping sentiment were indications that Kuwait, Saudi Arabia and Oman were among the producers making good on promises to cut output as agreed late last year.
However, prices were also pressured by speculation and the strongest US dollar in 14 years as investors continued to bet on growth under a big-spending Trump administration.
The price of West Texas Intermediate (WTI) crude rose last week by 27 cents per barrel to $53.99. Brent rose 35 cents to $57.17 and Dubai crude closed at $54. Thaioil forecasts that WTI this week will move within the range of $52 and $57 and Brent will trade between $54 and $59. Prices are expected to remain high as more output cuts take effect. In addition, US inventories should shrink further as refineries seek to meet high demand for winter fuel. Among the factors expected to influence trade:
The market will monitor compliance by Opec and non-Opec members with agreements to reduce output by 1.8 million bpd over the next six months. Saudi Arabia has already informed customers of further reductions in its exports in February, and Kuwait has told its customers that it would cut production by 131,000 barrels a day. Oman, a non-Opec member, also said it was prepared to cut 45,000 bpd, or 5% of its total, starting in March. Opec members will review progress at a meeting on Jan 21 and 22 in Vienna.
Reuters estimated that Opec output in December dipped slightly to 34.18 million bpd from a record-high 34.38 million in November. However, the biggest decline came from Nigeria, which is exempt from output cuts, as it could not export Forcados crude after a pipeline attack in November. Saudi Arabia also supplied less in December due to softer demand from its customers.
Libya, which is exempt from the Opec accord, expects to increase production after pipelines connecting the El Sharara oilfield, with a capacity of 350,000 bpd, and the 90,000-bpd El Feel field, resume operation. Output is now estimated at 700,000 bpd, up from 600,000 a month earlier.
US crude inventories ended the year at 479 million barrels, down from a peak above 500 million. While the drawdown in the week to Dec 30 far exceeded forecasts, the Energy Information Administration said gasoline stocks surged by 8.3 million barrels and distillates rose 10.1 million as refiners ramped up production to reduce crude inventories, a common year-end practice to avoid higher taxes.
The US oil rig count rose last week by four to 529, the first time the current rig count had topped the year-ago level since January 2015.
Economic indicators to watch this week include euro zone unemployment, US jobless claims and retail sales
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