Oil Market Outlook
Oil prices continued to climb last week amid tightening supplies, as US shale production was taking longer than expected to recover from freezing temperatures and power outages in Texas.
The market also gained support from the approval by a US Food and Drug Administration panel of a Johnson & Johnson coronavirus vaccine that will require just one dose, instead of two for other vaccines.
Gains were capped by reports of higher US crude inventories, while the strengthening dollar and worries about inflation led to a sell-off on Friday. However, prices were still up nearly 18% for February as inventories worldwide tighten and pockets of demand return.
West Texas Intermediate crude rose $2.26 on the week to close at $61.50 per barrel. Brent gained $3.22 to $66.13 and Dubai crude averaged $64.44. Thaioil forecasts that WTI this week will trade between $60 and $65, and Brent between $64 and $69. Prices are expected to remain high as production in Texas is not yet back to normal. But traders will be watching the dollar, bond yields and inflation, which could pressure commodity prices. Anticipation of an uptick in production by Opec and its allies could also limit gains. Among the factors expected to influence trade:
▮Refineries in Texas began resuming operations late last week after severe weather and power outages led to a crude production loss of 4 million barrels per day (bpd) at its peak. Total US crude output in the week to Feb 19 declined by 1.1 million bpd to 9.7 million, and the oil and gas rig count fell for the first time in 12 weeks. But drillers last week added five rigs.
▮US Federal Reserve chairman Jerome Powell signalled that the Fed is in no hurry to raise interest rates, as it could take at least three years for inflation to reach the 2% target. He also said the increase in bond yields was a sign of confidence in the economy. However, many investors have been spooked by the run-up in Treasury yields to a 12-month high, and they believe a rapid economic recovery could feed inflation.
▮More countries are easing lockdown measures and other restrictions as Covid caseloads fall and vaccinations move forward. The UK, one of the hardest-hit countries, is aiming to end all curbs by June 21.
▮Opec and its allies will meet on Thursday to review their output cuts, which have need aimed at keeping crude prices around $60 a barrel. They are widely expected to reduce their aggregate production cuts by 500,000 bpd from the current level of 7.2 million.
▮Economic indicators to watch include US manufacturing PMI and confirm payrolls, and euro zone February inflation, retail sales and January unemployment.