Oil Market Outlook
Oil prices have posted their longest stretch of weekly gains since 2011, with Brent climbing above $80 a barrel, in a market that is becoming increasingly balanced as a result of Opec production cuts. OECD oil inventories are now very close to the five-year average, the target set by Opec and its allies.
Prices are also being supported by concern about a decline in supplies from Iran following the reintroduction of US sanctions. However, the strong dollar and rising US crude oil production have limited gains.
West Texas Intermediate (WTI) crude increased by 65 cents to close at $71.35. Brent gained $1.39 to $78.51 and Dubai crude averaged $77. Thaioil forecasts that WTI will trade this week between $69 and $74, and Brent will move between $76 and $81. Prices are expected to rise as supplies tighten amid concern about Iranian exports and collapsing output in Venezuela. However, prices could move in a narrow range given high US output. Among the factors expected to influence trade:
Sanctions on Iranian crude oil exports will take effect on Nov 4 after a 180-day adjustment period granted by Washington. Analysts predict that Iran’s output could decline in the next 2-3 months by between 300,000 and 1,000,000 barrels per day, depending on how its trading partners respond to US sanctions. Iran pumps about 4% of the world’s oil and exports 450,000 bpd to Europe. However, the United Arab Emirates’ energy minister said last week that Opec has enough spare capacity to take up the slack, led by Saudi Arabia, Kuwait and the UAE.
Cooperation to curb the global surplus remains high. Overall compliance by Opec and its allies is 162% of the 1.8 million bpd targeted, though the figure is inflated by the slump in Venezuelan production. OECD oil stocks are now only 9 million barrels above the five-year average, compared with 320 million barrels in early 2017.
The US has applied more pressure on Venezuela by sanctioning a former National Assembly speaker and three others, accusing them of involvement in drug trafficking, money laundering and embezzlement. President Nicolas Maduro was seeking a second six-year term yesterday in an election boycotted by the opposition. Oil production has fallen to a 30-year low of 1.5 million bpd as the national oil company can barely afford to meet its expenses.
US crude output has reached a record 10.72 million bpd as high prices encourage producers, although the rig count was unchanged last week. The Energy Information Administration forecasts that shale output alone will rise next month by 145,000 bpd to a record 7.18 million.
The International Energy Agency (IEA) has trimmed its oil demand forecast now that prices have passed $80 a barrel. It sees global demand rising this year by 1.4 million bpd, versus 1.5 million in a previous forecast.
Economic indicators to watch include euro zone Markit PMI and consumer confidence figures, and US new-home sales, durable good orders and initial jobless claims.