Oil Market Outlook

Oil prices remained under pressure amid concerns over a second wave of Covid-19 outbreaks in the US and other countries, which could lead to reduced economic activity and oil demand.

Trade in West Texas Intermediate (WTI) crude in particular has been rangebound since early June as major consuming states like Texas, Florida and California face a resurgence in Covid-19 cases.

However, prices gained support from output reductions by the Opec+ alliance, though its members are scheduled to scale back their cuts from Aug 1.

WTI rose 4 cents on the week to close at $40.59 per barrel. Brent fell 10 cents to $43.14 and Dubai crude averaged $42.95. Thaioil forecasts that WTI this week will trade between $38 and $43, and Brent between $40 and $45. Prices are expected to remain stable because Opec+ output cuts are meeting their targets. US supplies are also falling, while oil demand in many countries is recovering as lockdowns ease. Among the factors expected to influence trade:

The market is bracing for a supply increase as Opec+ scales down its output cuts to 7.7 million barrels per day (bpd) from August through December, from 9.7 million bpd now. Some countries, including Iraq, Nigeria and Kazakhstan, have agreed to make extra cuts of 840,000 bpd in August and September to compensate for overproduction in May and June. Compliance with existing Opec+ reductions was 107% in June, an improvement from 87% in May.

US crude inventories in the week to July 10 fell by 7.5 million barrels to 531.7 million, while refinery utilisation climbed 0.6 points to 78.1% of capacity, signalling a demand recovery. Meanwhile, the number of active oil and gas drilling rigs fell for the 11th straight week, to an all-time low of 253, according to the energy services firm Baker Hughes. Barring a return to lockdowns in major states, the country will need to start pumping more oil soon, analysts say.

The International Energy Agency has revised its global oil demand forecast for 2020 to a contraction of 7.9 million bpd, compared with 8.1 million bpd earlier. It sees demand recovering by 5.3 million bpd in 2021, while Opec forecasts a gain of 7 million bpd.

Morgan Stanley has raised its third-quarter price forecast for WTI to $35 from $32.50 and its Brent forecast to $40 from $37.50. But it says the market will remain unstable with prices lower than pre-pandemic levels until the end of 2021.

Economic indicators to watch include Chinese interest rates, euro-zone manufacturing PMI and jobless claims.