Oil Market Outlook
Oil prices recorded their biggest weekly increase this year amid speculation that Opec will extend its deal to curb output beyond the scheduled expiry in June. A sharp drop in Libyan output as conflict intensified also supported prices.
Traders were also encouraged by a slowdown in the pace of US crude stock increases. However, rising US production and rig numbers continue to pressure prices.
West Texas Intermediate (WTI) crude increased by $2.63 to close at $50.60 per barrel. Brent gained $2.03 to $52.83 and Dubai crude averaged $51. Thaioil forecasts that WTI this week will move within the range of $48 and $54, while Brent will trade between $49 and $58. Prices are expected to increase slightly given the positive outlook for an extension of Opec output cuts, and reductions in Libyan production. However, high US crude stocks will continue to cap gains. Among the factors expected to influence trade:
Compliance with Opec production cuts remains high, led by Saudi Arabia which exceeded its quota for a third month in March, lifting total compliance to 106% of the 1.2 million barrels that 11 members agreed to take off the market to support prices. Iraq and the UAE also cut more production in March due to oilfield maintenance. Meanwhile, nonmember Russia estimated its reductions at 200,000 barrels per day and said it would reach its full commitment of 300,000 bpd by the end of April. An extension of Opec cuts beyond June is now seen as likely because OECD oil stocks are still 282 million barrels above the five-year average.
Libya’s National Oil Corporation (NOC) has been forced to reduce production and last week declared force majeure on crude loading from the El Sharara and Wafa oilfields where conflict has resumed. Production has declined by 252,000 bpd from 700,000 bpd earlier and it is not certain when operations will resume.
Brazil is poised to sharply increase oil exports this year amid rising demand for its lighter crudes, especially in China and India. Exports in January and February soared 65% year-on-year to 1.46 million bpd, Reuters reported.
US crude stocks continue to increase amid steady gains in crude oil imports and production volumes. However, the pace of increases should slow as refineries start raising output to meet demand in the coming summer driving season. US crude stockpiles in the week to March 24 rose by 867,000 barrels, lower than analysts’ forecasts of 1.4 million, to 534 million, according to the Energy Information Administration. Gasoline inventories dropped by 3.75 million barrels, against a projected decline of 2 million.
The US oil rig count in the three months to March 31 rose by the most since the second quarter of 2011. Drillers added 10 rigs last week, bringing the total to 662, the energy services firm Baker Hughes said. However, oil output in West Texas is about to outgrow pipeline capacity, a combination that reduced crude prices in the region three years ago.
Economic indicators to watch include Chinese Caixin Manufacturing and services PMI, US and euro zone Markit Manufacturing PMI, and euro zone unemployment.