Oil Market Outlook
Oil prices recorded their biggest weekly loss in five weeks on concern about a demand slowdown and an unexpected rise in US stockpiles as import volumes spiked.
Turmoil in Turkey and US-China trade tensions also hurt sentiment, despite news that Beijing and Washington plan new talks later this month.
However, losses were limited by a drop in Iranian oil exports, with Japan, Korea and India reducing orders after Washington imposed new sanctions on Tehran.
West Texas Intermediate (WTI) crude fell $1.72 to $65.91 per barrel. Brent shed 98 cents to $71.83 and Dubai crude averaged $70.60. Thaioil forecasts that WTI this week will trade between $63 and $68, and Brent between $68 and $73. Pressure on prices is expected to continue from high US crude inventories and increased output by Opec and its allies. Among the factors expected to influence trade:
US crude oil inventories are expected to rise again as imports and domestic output remain high, even though refinery utilisation is high at 98%. Inventories in the week to Aug 10 rose by 6.8 million barrels, against forecasts for a decline of 2.5 million. US crude output rose 100,000 to 10.9 million, but drillers added no new oil rigs to the existing total of 869.
Opec and its allies will meet on Aug 27 to review their output strategy. They agreed in June to lift output by up to one million bpd to offset declines from Venezuela and Iran, but some analysts say that would be too much. Output by the UAE Kuwait and Iraq rose by 120,000 bpd in July, but Saudi Arabia cut production by 52,800 bpd to 10.39 million, foreseeing weakening demand.
US-China trade tensions are unlikely to be resolved soon, even though the two sides plan to meet in Washington later this month. Each has threatened tariffs of 25% on $16 billion worth of the other’s goods starting this Thursday, but it is not clear whether those threats will be carried out. Economists have warned that a full-out trade war would depress world economic growth and reduce oil demand.
Libyan crude production is expected to return to normal levels above 900,000 bpd, from 664,000 bpd in July, after the Sharara field resumed normal operations last week. The Zueitina, Hariga, Ras Lanuf and Es Sider ports are all open, but conflict between militias and the fragile government remains a constant threat.
Iran’s oil output fell by 56,300 bpd in July, with imports by South Korea declining 43.5% year-on-year to 186,500 bpd. However, China is expected to continue importing Iranian crude.
China and India now account for 12% of all global crude imports. However, their combined import volumes in July were 500,000 bpd below the average for the first half, reflecting a slowdown of China stemming from its trade disputes with the US.
Economic indicators to watch include US new home sales, euro zone and US manufacturing and services PMI.