Oil Market Outlook
Oil prices were pressured last week by a report that Opec output in July would be the highest of the year to date, inflated by rising supplies from Libya and Nigeria which are exempt from production cuts. And while US production also rose, a third consecutive week of declines in US crude inventories, and by more than analysts had forecast, limited losses.
In addition, prices were supported by strong demand in China, where refineries increased distillation rates in June to 11.21 million barrels per day from 10.98 million in May.
The price of West Texas Intermediate (WTI) crude decreased by 77 cents to end the week at $45.77 per barrel. Brent dropped 85 cents to $48.06 and Dubai crude averaged $48. Thaioil forecasts that WTI this week will move within the range of $45 and $50, while Brent will trade between $47 and $52. The market this week is expected to react to the outcome of meetings between Opec and non-Opec producers as they review their collaboration to stabilise prices. Prices will be supported by further declines in US crude stocks but gains could be offset by higher Libyan and Nigerian output. Among the factors expected to influence trade:
Opec and non-Opec producers conclude three days of meetings in St Petersburg, Russia today. Few observers expect any further expansion of current output cuts of 1.8 million bpd, or an extension of the pact beyond March next year. However, Libya and Nigeria have been asked to join the talks and some Opec members believe that at some point those two countries should be asked to rein in production. Total supply from Opec is forecast to exceed 33 million bpd this month as members including Saudi Arabia and Nigeria increase shipments, according to the tanker tracker Petro-Logistics.
US crude stocks continue their downward movement as refiners keep busy during the summer driving season. Stocks in the week to July 14 declined by 4.7 million barrels to 490.6 million, according to the Energy Information Administration (EIA). That’s down from a peak of 530 million barrels in February. Gasoline stocks fell by 4.4 million barrels, four times the amount forecast. Diesel stocks also dropped by 2.1 million barrels.
Libya continues to raise oil production at a rapid clip as conflicts ease. Output in August is expected to reach 1 million bpd, four times the low recorded last year, with a year-end target of 1.25 million, rising to 1.5 million bpd in 20-18, authorities said last week.
US shale oil production is forecast to rise in August by another 112,000 bpd from July to 5.58 million bpd, according to the EIA. However, the pace of oil rig additions has slowed in recent weeks in light of falling crude prices. The number of active rigs last week fell by one, only the second decline this year, to 764, according to the oilfield services firm Baker Hughes.
Economic indicators to watch this week include euro zone and US manufacturing and services PMI, US durable goods orders and final second-quarter GDP figures.