Oil Market Outlook
Crude oil prices posted their first weekly gain in a month as global production cuts started to lift sentiment in the physical market and some countries took tentative steps towards resuming economic activity.
But excess supplies in the market remain high and it could be months before demand returns to anything approaching normal. US crude inventories, at 527.6 million barrels, are close to an all-time record.
Prices were supported by news of an output cut from Norway, its first in 18 years. The biggest producer in western Europe, with average output of about 1.8 million barrels per day (bpd), said it would reduce production from June to December by an average of 13%.
West Texas Intermediate (WTI) crude rose $2.84 on the week to close at $19.78 per barrel. Brent climbed $5.00 to $26.44 and Dubai crude averaged $20.85. Thaioil forecasts that WTI this week will trade between $16 and $21, and Brent between $23 and $28. Prices are expected to remain low, though the easing of lockdowns in countries including the US and Spain could help demand. Among the factors expected to influence trade:
Opec+ members last week began reducing their output by a total of 9.7 million bpd, but the coronavirus pandemic has reduced demand by 25-30 million bpd. Russia is cutting its output this month from 11.24 million bpd to 8.5 million and is nearly halving crude exports to 1.3 million bpd.
US crude inventories at the main delivery hub in Cushing, Oklahoma have reached 65 million barrels or 86% of total capacity, heightening market concern that lack of storage could lead to a new price crash.
The number of rigs drilling for oil and gas worldwide fell by almost 20% in April. In the United States, the oil rig count dropped last week by 53 to 325, compared with 807 in the same week last year. Exxon Mobil and Chevron on Friday announced deep cuts in output and investments in the Permian shale basin. ConocoPhillips said its reductions would reach 460,000 bpd, the largest cut by any producer, next month.
Regulators in Texas will vote tomorrow on whether to mandate an output cut of up to 1 million bpd, or 20% of the state’s capacity, in order to support prices.
The US has approved the use of remdesivir to treat Covid-19 in emergency cases, leading to hope that the world’s largest economy can start to bring the virus under control and get back to work.
Economic indicators to watch include Chinese trade and manufacturing PMI updates and US April jobless claims.
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