Oil Market Outlook
Oil prices were pressured last week by reports of US crude oil inventories that were three times higher than forecast. US gasoline stocks also increased, contrary to expectations, as demand is down 5.3% from a year earlier, while the rising number of US oil rigs also troubled the market.
However, prices continued to be supported by data showing that agreements by Opec and others to reduce production were holding up. Opec members have now reduced output by 93% of their target of 1.2 million barrels per day.
The price of West Texas Intermediate (WTI) crude fell last week by 46 cents to $53.40 per barrel. Brent shed 89 cents to $55.81, and Dubai crude averaged $54 per barrel. Thaioil forecasts that WTI this week will move within the range of $51 and $56 and Brent will trade between $53 and $58. Little movement is expected as the effects of production cuts have been largely priced in, while rising US production and inventories will continue to limit any gains. Among the factors expected to influence trade:
Opec and non-Opec producers will meet tomorrow and Wednesday to review the progress of their output reductions. An Opec report issued last week showed that 11 members, excluding Libya, Nigeria and Indonesia, cut production in January by 1.16 million bpd to 29.88 million. The 93% compliance rate is far better than the 60% achieved in the first month the last time members reduced output, in 2009.
Output from Libya, which is exempt from the Opec agreement, is expected to rise further as production resumes at the 75,000-bpd El Feel oil field. Total production has now reached 700,000 bpd and is forecast to reach 1.2 million bpd in August. National Oil Corporation expects output to rise to 1.6 million bpd in 2018.
US shale oil production continues to rise as prices improve. The Energy Information Administration (EIA) forecasts an increase of 80,000 bpd in March, from an estimated 4.87 million bpd this month. BofA Merrill Lynch said last week that shale oil production could grow by 3.5 million bpd between now and 2022, accounting for more than 80% of incremental non-Opec barrels. The break-even production cost for shale oil is now estimated at $34.90 per barrel.
US crude oil inventories are soaring on soft demand as refineries begin seasonal turnarounds. Crude inventories in the week to Feb 10 rose by 9.5 million barrels, nearly triple analysts’ expectations, to a record 518 million, the EIA said. Gasoline stocks rose 2.8 million barrels, compared with analysts’ expectations for a 752,000-barrel drop. That pushed inventories to a record 259 million barrels.
US oil companies added rigs for a fifth straight week, extending a nine-month recovery as drillers take advantage of crude prices that have held above $50 a barrel since Opec agreed to cut supplies. Drillers added six rigs in the week to Feb 17, bringing the total to 597, the most since October 2015, the energy services firm Baker Hughes said.
Economic indicators to watch this week include the Markit Manufacturing PMI readings for the US and the euro zone, US consumer prices and jobless claims.