Oil Market Outlook
Oil prices posted their biggest weekly gain since last July as US crude inventories fell unexpectedly, while concerns rose about the future of the Iran nuclear accord, which could affect oil exports from Opec’s thirdlargest producer.
US President Donald Trump has appointed John Bolton, a hawk who believes sanctions should be reimposed on Iran, as his new national security adviser. Saudi Arabia also said last week that the deal between Iran and six major powers in 2013 was flawed and should be re-examined.
Any resumption of US sanctions against Iran could lead to a drop in its oil exports by 250,000 to 500,000 barrels per day (bpd), industry analysts have said.
Oil prices gained even as equities slumped and the dollar weakened amid concerns over a trade war with China that could hurt economic growth. However, gains were capped by the continuing rise in US oil output.
West Texas Intermediate (WTI) crude increased by $3.54 to close at $65.88 per barrel. Brent gained $4.24 to $70.45, and Dubai crude averaged $66. Thaioil forecasts that WTI this week will trade between $64 and $69, while Brent will trade between $68 and $73. Prices are expected to rise on higher demand from US refiners. However, trade could be volatile if concerns about a trade war continue to affect market sentiment. Among the factors expected to influence trade:
US oil inventories are expected to fall as refiners step up activity following maintenance shutdowns. Refinery utilisation rates last week topped 90%, the highest in two months. Stocks in the week to March 16 fell by 2.6 million barrels, against a forecast for a gain of 3.2 million. The total of 428.31 million was below the five-year average for the first time since 2014. Analysts at ING said the drawdown reflected a fall in imports by around 500,000 bpd to an average of 7.08 million, and a rise in exports.
US crude production has topped 10.4 million bpd and is on course to exceed 11 million bpd by year-end, making the country the world’s top producer ahead of Russia. US energy companies added four oil rigs in the week to March 23, bringing the total to 804, the highest since March 2015.
Compliance with the agreement by Opec and its allies to cut production to support oil prices remains very strong. Compliance in February rose five percentage points to 138% of the 1.8 million bpd, or 2% of global output, that the countries agreed to cut. The latest estimates put compliance at 147%, due in large part to the plunge on output from nearbankrupt Venezuela.
Monitor US dollar movement in light of last week’s Federal Reserve decision. The Fed raised its key rate by a quarter percentage point to 1.75%, and signalled two more increases this year. A stronger dollar makes oil more expensive for investors holding other currencies.
Economic indicators to watch include Chinese manufacturing and services indices, and final US fourth-quarter 2017 GDP and personal consumption expenditure data.