Oil Market Outlook

Oil prices rallied for five straight days last week, with Brent crude breaching $70 a barrel for the first time since 2014. The decline in US crude stockpiles for the eighth consecutive week amid healthy demand also helped sentiment. Yet doubts linger that a strong price rally will persist with expanding US output and a rising rig count.

While continued production cuts by Opec and its allies are expected to restore balance in the oil market soon, gains could be negated by higher US production, which is on course to surpass 10 million barrels per day (bpd) in the first quarter of this year.

West Texas Intermediate (WTI) crude increased by $2.86 to close at $64.30 per barrel. Brent gained $2.25 to $69.87 and Dubai crude averaged $66.11. Thaioil forecasts that WTI this week will move within the range of $60 and $65, while Brent will trade between $66 and $71. Prices are expected to rise as US crude stocks keep falling, while freezing temperatures temporarily depress US production. However, gains could be limited by the resumption of North Sea and Libyan pipelines after emergency shutdowns. Among the factors expected to influence trade:

US crude stocks continue their decline amid high refinery run rates to meet heating fuel demand. US crude imports are also low. Inventories in the week to Jan 5 fell by 4.9 million barrels to 419.5 million, beyond forecasts of 3.9 million barrels. Inventories at the Cushing, Oklahoma delivery point fell to a three-year low of 46.5 million barrels.

While extreme cold weather reduced US crude oil production in the week to Jan 5 by 290,000 bpd to 9.5 million, the recent run-up in prices is encouraging drillers to add more rigs. The rig count last week climbed by 10, the biggest weekly gain since last June, to 752, according to the energy services firm Baker Hughes. US production is expected to rise to an all-time high of 10.3 million bpd in 2018 and 10.9 million bpd in 2019, from 9.3 million bpd in 2017, according to the latest Energy Information Administration forecast.

An Opec committee will meet in Oman on Jan 21 to review recent developments and how they affect its production-cut pact. While prices have jumped lately, UAE Energy Minister Suhail al-Mazroui advises prudence. “We need to give the market time,” he said on Friday. “I don’t think any fundamentals have changed for us.”

Monitor developments in Iran, where anti-government protests appear to have eased, reducing the risk of impact on oil production. However, US President Donald Trump laid down a challenge to Tehran last week, saying sanctions could be reimposed in four months if a better deal to curb Iran’s nuclear programme is not reached.

The Forties pipeline in the North Sea is back at its full capacity of 450,000 bpd after repairs, and Libyan output is rising as a pipeline with a capacity of up to 100,000 bpd resumed operations following a rebel attack in December.

Economic indicators to watch include Chinese fourthquarter 2017 GDP, retail sales and manufacturing PMI, and European consumer prices.

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