Oil Market Outlook
Oil prices were little changed last week, gaining support from a weakening US dollar and expectations that the US Congress will quickly pass President Joe Biden’s $1.9-trillion stimulus plan.
However, prices were pressured by an unexpected rise in US crude inventories by 4.4 million barrels, and concerns over slowing oil demand as many countries impose curbs to contain the Covid outbreak.
West Texas Intermediate (WTI) crude rose 9 cents on the week to close at $52.27 per barrel. Brent gained 31 cents to $55.41 and Dubai crude averaged $55.29. Thaioil forecasts that WTI this week will trade between $49 and $54, and Brent between $52 and $57. Prices are expected to remain high on expectations of further dollar weakening, especially if the US Federal Reserve announces more asset-purchase stimulus measures when it mets this week. Prices are also gaining support from progress in vaccine delivery and inoculations. Among the factors expected to influence trade:
The US House of Representatives is expected to vote on President Biden’s $1.9-trillion stimulus plan in the week of Feb 1, but there could be some political wrangling in both the House and the Senate over parts of the bill. In any case, it is hoped that financial aid will start reaching millions of Americans in March.
An estimated 60 million people worldwide have received Covid-19 vaccinations so far, as deliveries gather momentum. The market is now monitoring the final-phase trial of a vaccine by Johnson & Johnson, which says its product requires only one dose.
The recovery of oil demand is likely to be slower than expected as new Covid cases continue to surge. China has seen the biggest rise in new infections in five months and many areas surrounding Beijing are in lockdown, affecting some 20 million people. This will lead to stricter travel restrictions for the Lunar New Year in early February. The International Energy Agency has cut its oil demand growth forecast for 2021 by 300,000 bpd. That would result in a full-year gain of 5.5 million bpd, after a drop of 8.8 million in 2020.
Opec+ crude production is likely to drop as producers maintain their output cut quota of 7.2 million bpd in February and March, and Saudi Arabia deepens its cuts by 1 million bpd to balance crude supplies.
US producers continue to bring more wells back into service as prices hold above $50. The US oil and gas rig count rose by five to 378 in the week to Jan 22. That is still 52% below this time last year.
Economic indicators to watch include the first reading if US fourth-quarter GDP, US December durable goods orders and the Fed policy meeting.
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