Oil Market Outlook
Oil prices posted their first weekly increase since last month as rebounding equity markets eased concern about global economic growth, while a weakening dollar lifted the appeal of commodities priced in the US currency. In addition, US crude oil inventories rose by a smaller amount than forecast.
However, gains were capped by higher US production, now at a record 10.27 million barrels per day, surpassing that of Saudi Arabia. As well, the number of active oil rigs increased for a fourth week in a row to nearly 800.
West Texas Intermediate (WTI) crude increased by $2.48 to close at $61.68 per barrel. Brent gained $2.05 to $64.84 and Dubai crude averaged $61.50. Thaioil forecasts that WTI this week will move within the range of $58 and $63, while Brent will trade between $61 and $66. Prices will be pressured by higher US output and rising inventories as refinery demand slows during maintenance shutdowns. However, support should come from a weakening dollar and continued high compliance with supply cuts by Opec and its allies. Among the factors expected to influence trade:
US production is expected to continue surging as energy companies scale up their spending plans in light of prices that remain well above production costs. Drillers added seven oil rigs last week, bringing the total to 798, the highest since April 2015. The count is up from 597 in the same week a year ago. The Energy Information Administration (EIA) forecasts that output by what is now the world’s largest oil producer will reach 11.13 million barrels per day by the end of 2018.
Expect a fourth week of increases in US crude oil inventories amid decreasing demand during refineries’ seasonal turnarounds. Crude stocks in the week to Feb 9 increased by 1.8 million barrels to 422.1 million. The gain was lower than the 2.8 million barrels forecast by analysts.
Higher output by the US is blunting the effectiveness of output cuts by Opec and its allies. Compliance with their agreement in January was 137% of the 1.8 million bpd that the group aims to keep off the market. That compared with 99% in December. Top Opec producer Saudi Arabia is leading the way by exceeding its agreed target. In addition, Venezuelan crude production has fallen to a 30-year low of 1.6 million bpd, but that is mainly because the country and its national oil company are broke.
Despite the dwindling impact of production cuts, Saudi Arabia has ruled out a Russian proposal to end the curbs at midyear. Some participants are worrying about losing market share to the US and others that are not parties to the agreement, but Riyadh believes the output reductions should continue until year-end as planned.
The recovering global economy has led the International Energy Agency (IEA) to lift its oil demand growth forecast to an average of 1.4 million bpd this year.
Economic indicators to watch include euro zone and US manufacturing PMI, US unemployment and euro zone consumer confidence.