Oil Market Outlook
Oil prices finished last week at a six-week high on signs that the market is tightening as members of the European Union moved closer toward banning Russian crude.
Gains were capped by concerns about the growing economic impact of Covid lockdowns in China, while US crude inventories rose unexpectedly.
West Texas Intermediate (WTI) crude rose $4.60 on the week to close at $109.77 per barrel. Brent gained $4.81 to $112.39 and Dubai crude averaged $107.69. Thaioil forecasts that WTI this week will trade between $100 and $112, and Brent between $102 and $115. Prices are expected to remain high and volatile, as traders seek more details on the EU embargo of Russian oil. Among the factors expected to influence trade:
The EU aims to reduce oil imports from Russia within six months and ban all Russian refined oil products by the end of 2022. Germany is leading the way, but Hungary and Slovakia may be given until 2023 to comply as they rely very heavily on Russian oil. Final approval of the plan, requiring unanimous agreement from all 27 member states, is expected this week.
Russian oil exports, excluding those to ex-Soviet states, rose to 4.88 million barrels per day (bpd) in April, up 2% from March, Reuters reported. Exports to the EU were 2.2 million bpd. Exports to Europe and the UK fell 700,000 bpd compared to the pre-war period, but exports to India in April doubled from March to 500,000 bpd. Other countries are also buying more Russian oil, so the impact of EU cuts might not be as much as forecast, the energy consultancy FGE says.
New daily Covid cases in China are down by nearly two-thirds from the April 24 peak, but lockdowns and mass testing continue in major cities. The closure of Shanghai caused the manufacturing PMI in April to sink to 47.4 — a figure below 50 indicates a weakening domestic economic outlook. The People’s Bank of China has stepped in with eased reserve requirements for banks to help stimulate sluggish activity.
The US Federal Reserve says it will continue to raise interest rates aggressively and also start selling down its bond holdings in June to fight inflation. US first-quarter GDP contracted 1.4% from the fourth quarter, due to the impact of high energy and commodity prices. Investors will closely monitor second-quarter performance to see if the economy can get back on track.
Economic indicators to watch include Chinese trade data for April, with forecasters predicting the surplus will narrow to $22 billion from $47 billion. Also due is European economic confidence, which is expected to be lower than in April.