Oil Market Outlook
Oil prices continued to be depressed last week by concern that Opec members and Russia would increase production by up to one million barrels per day to compensate for lost supplies resulting from sanctions against Iran and Venezuela.
Prices were also pressured by an unexpected increase in US crude oil inventories and the continuing rise in US output to 10.8 million barrels per day.
West Texas Intermediate (WTI) crude fell by 7 cents from a week earlier to $65.47 per barrel. Brent dropped 32 cents to $76.46 and Dubai crude averaged $74. Thaioil forecasts that WTI will trade this week between $62 and $67, while Brent will move between $73 and $78. Prices are expected to fall as traders move to the sidelines ahead of a key Opec meeting. However, gains could be limited if Venezuela declares force majeure on oil exports as it struggles to meet obligations. Among the factors expected to influence trade:
The oil ministers of Saudi Arabia and Russia will meet this week, fuelling speculation that they may be ready to wind down production cuts that had pushed Brent prices close to the Saudis’ goal of $80 a barrel. Their discussions could have a big influence on any decisions taken at Opec meetings scheduled for June 22-23. Venezuela and Iran have asked Opec to unite against US sanctions when the group meets, but sources say that request is likely to be rejected as other members fear a backlash.
US oil production capacity continues to rise as prices remain well above break-even levels. Oil drillers added one rig last week, bringing the total to 862, despite pipeline bottlenecks that are hindering efforts to ship crude from the country’s busiest fields. The Energy Information Administration said output in the week to June 1 was 10.8 million bpd, which is up 28% from two years ago.
US crude oil exports in April hit an all-time high of 1.76 million bpd. The outlook remains healthy as the spread between Brent and WTI prices has widened to $11 per barrel, the highest since March 2015. Recent data show more Asian customers sourcing lower-priced crude from the US, taking market share away from Russia and Opec. Analysts forecast that US exports will rise by 3.6 million bpd in the next five years.
US crude inventories rose 2.1 million barrels in the week to June 1, to 436.6 million, against forecasts for a decline. The figure reflected a jump in American imports of Saudi crude, which almost doubled to 1.12 million bpd, the highest since last July.
Venezuela may declare force majeure on crude oil exports if buyers do not accept new contract terms. Crude oil production is at a 30-year low as the industry struggles to find operating financing. According to a recent news report, oil tankers are waiting for some 24 million barrels of crude oil at Venezuelan ports.
Economic indicators to watch this week include US producer and consumer prices, Chinese first-quarter GDP, and Chinese and US retail sales.