Oil Market Outlook
Oil prices were supported last week by an unexpected decline in US inventories amid lower imports of Canadian crude due to technical problems in the Keystone pipeline. As well, US crude oil exports have been rising as producers take advantage of spot prices that are currently higher than future prices.
Also supporting prices was the shutdown of the El Feel oil field in Libya due to a labour dispute, and upbeat comments from Saudi Arabia that the Opec-led effort to cut stockpiles is working despite high US production.
However, prices were pressured by the revival of the US dollar amid speculation that the Federal Reserve will start to raise interest rates aggressively. Additionally, rising US production, coupled with a rig count at a three-year high, is limiting gains.
West Texas Intermediate (WTI) crude increased by $1.87 to close at $63.55 per barrel. Brent gained $2.47 to $67.31 and Dubai crude averaged $62. Thaioil forecasts that WTI this week will move between $60 and $65, while Brent will trade between $63 and $68. Prices are expected to fall as US output remains high, while refinery maintenance will curb demand. However, reduced output in Libya and Venezuela will support prices. Among the factors expected to influence trade:
US crude oil inventories are likely to rise as refinery run rates have slipped to 88.1% from 89.8%, with further declines expected in March as maintenance work picks up. Crude inventories in the week to Feb 16 unexpectedly fell by 1.6 million barrels, the most in five weeks, to 420.5 million, in contrast to forecasts for a gain of 2.9 million.
US crude production has ticked marginally lower for the first time since early January to 10.3 million bpd but is expected to rebound soon. The number of active oil rigs has increased by 52 since the beginning of this year and now stands at a three-year high of 799. Production is expected to hit 11 million bpd later this year.
Dollar movement will continue to influence all commodity prices until the US interest-rate outlook becomes clearer. The Fed is expected to raise its rate at its next meeting in March, but analysts are divided on how many more increases will follow before the year is out.
Libya was dealt a setback when guards at the 70,000 bpd El-Feel deposit walked out in a pay dispute last week. The country’s crude output averaged 828,000 bpd last year, the highest since 2013. Production was on track to rise to 1.1 million bpd for February prior to the latest setback.
Saudi Energy Minister Khalid al-Falih is optimistic that the oil glut will continue declining, indicating that output cuts by Opec and its allies are working. Compliance in January was 137% of the 1.8 million bpd covered by the pact. The high figure, however, is skewed by large and unintended reductions in economically challenged Venezuela.
Economic indicators to watch include revised US fourthquarter 2017 GDP, Chinese manufacturing and services, US durable goods orders, and US and euro zone PMI updates.
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