Oil Market Outlook
Oil rallied last week after Saudi Arabia’s energy minister indicated that output cuts by Opec and its allies could be extended to the end of 2017 or beyond. However, the rebound ran out of steam on Friday as investors started to increase their focus on all the production, especially by the United States, that Opec can do nothing about. Opec last week lifted its estimates for growth in rival supplies this year by 64%.
While investors were encouraged by a big drop in US crude inventories, increased production from Libya, Nigeria and the US weighed on sentiment.
The price of West Texas Intermediate (WTI) crude increased by $1.62 to close at $47.84 per barrel. Brent gained $1.74 to $50.84 and Dubai crude averaged $50. Thaioil forecasts that WTI this week will move within the range of $45 and $50, while Brent will trade between $48 and $53. Prices are expected to improve slightly as expectations for an extended output cut rise. Falling US crude stocks will also help but higher output from the US, Libya and Nigeria, could cap gains. Among the factors expected to influence trade:
Saudi Arabia, Iraq and Algeria have all declared support for extending an output cut into the second half of 2017, as they prepare to make a decision in Vienna on May 25. Compliance with cuts in the first half was above 90%, with Reuters reporting that Opec crude export volumes in April fell by 1.12 million barrels per day from the previous month, to 23.93 million bpd.
The signs from outside Opec are less encouraging. Production from outside the cartel will rise by 950,000 bpd this year, Opec said last week, revising its forecast from 580,000 bpd. Non-Opec nations pump 60% of the world’s oil.
US crude oil inventories continue to fall as refinery run rates remain high. Stocks in the week to May 5 declined by 5.25 million barrels to 522.5 million, the Energy Information Administration reported. However, output rose for a 12th week to 9.3 million bpd. Production will top 10 million bpd by late next year, the EIA said.
Production in Libya is reviving as the El Sharara and El Feel fields, with a combined capacity of 420,000 bpd, are operating again. National output has reached 800,000 bpd, the highest since 2014, with a target of at least 1.1 million bpd within reach if conflicts ease. Nigerian output is also poised to rise as production resumes from the 225,000bpd Bonga oilfield, which was closed for maintenance in March and April. The 250,000-bpd Trans Forcados oil pipeline is also expected to resume operations soon.
The opening this week of the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline, with capacity of 470,000 bpd, will reduce US producers’ transport costs and encourage yet more exploration. The number of active US oil rigs increased by nine last week to 712, the oilfield services firm Baker Hughes said.
Economic indicators to watch include Chinese retail sales and industrial production, and euro zone first-quarter GDP and consumer prices.