Oil Market Outlook
C rude prices continued their rise last week, with Brent crude topping $85 a barrel for the first time in three years, amid growing demand for oil for power generation and industrial use, as natural gas and coal prices have reached record highs.
Prices were also supported by a US Department of Energy statement that there was no plan to release supplies from the country’s strategic reserve to tame prices.
However, gains were capped by a jump in US crude inventories, amid rising production and a decline in demand during the refinery maintenance season.
West Texas Intermediate crude rose $2.93 to close at $82.28 per barrel. Brent gained $2.47 to $84.86 and Dubai crude averaged $83.17. Thaioil forecasts WTI this week will trade between $78 and $84, and Brent between $81 and $87. Prices are expected to remain high because of growing energy shortages in Europe and China and rising travel demand. Among factors expected to influence trade:
Oil demand is likely to go up by between 500,000 and 2 million bpd in the near term as gas and coal prices climb with the approach of winter. Meanwhile, supply from Opec+ is increasing by only 400,000 bpd. The group will review its quotas again on Nov 4.
Opec has revised down its forecast for world oil demand growth for all of 2021 from 5.96 million bpd to 5.8 million bpd, in line with a slight reduction in the IMF forecast for global GDP growth to 5.9% because of the impact of the delta coronavirus variant. Opec sees demand rising next year by 4.2 million bpd, tracking forecast global economic growth of 4.9%.
US crude inventories are likely to climb as refineries close for maintenance, while output has rebounded to pre-hurricane levels. Crude stocks in the week to Oct 8 jumped 6 million barrels, contrary to analysts’ forecast of a 700,000-barrel decline, as production rose by 100,000 bpd from the week before to 11.4 million bpd, while refinery crude intake fell by 600,000 bpd.
US crude production is expected to remain brisk as producers take advantage of higher prices. The number of active oil and gas rigs rose last week by 10 to 543.
The market will continue to monitor American policymakers’ response to surging fuel prices and inflation. While Energy Secretary Jennifer Granholm has walked back her statement that tapping the Strategic Petroleum Reserve was an option, the Biden administration is under political pressure to rein in oil prices.
Economic indicators to watch include China’s third-quarter GDP, September manufacturing production index and retail sales, and US and euro zone October manufacturing and services PMI.