Oil Market Outlook
Oil prices were little changed last week but price movements were volatile as the market responded to increasing signs of supply tightness, while EU efforts to impose a complete embargo against Russian oil have stalled.
Rising demand for motor fuels and an unexpected drop in US crude inventories ahead of the summer driving season underscored a tight supply situation, even as broader economic fears shook equity markets.
West Texas Intermediate crude fell 97 cents to close at $113.23 per barrel. Brent lost $1.69 to $112.55 and Dubai crude averaged $108.23. Thaioil forecasts that WTI this week will trade between $105 and $118, and Brent between $108 and $120. Prices are expected to move in a wide range as investors monitor Covid curbs in China, along with EU talks on the Russian oil boycott. Among the factors expected to influence trade:
▇ Shanghai plans to start reopening on June 1, ending weeks of strict Covid lockdowns that have had a major impact on the Chinese economy. A gradual easing of curbs in China in the second half is expected to lead to more economic activity and oil demand.
▇ US oil inventories in the week to May 13 fell by 3.4 million barrels, in a further sign of supply tightness. The country released 5 million barrels from its Strategic Petroleum Reserve as part of a continuing effort to push down prices.
▇ Russian oil and gas output in the first half of May rose 1.7% from the same period in April, reaching 10.25 million bpd, as sales to China and India increased. Crude output in April had fallen 9% from the previous month, an Opec report said, reflecting the impact of Western sanctions. But Vortexa estimates Russian oil exports to India will rise to between 430,000 and 480,000 bpd in May, while shipments to the Fujairah hub in the UAE will jump 125% to 2.5 million bpd.
▇ Hungary is the lone holdout against an EU ban on Russian oil imports, which requires unanimous approval from all 27 members. The EU has offered Hungary, which is heavily dependent on Russian crude, a grace period until 2024 to arrange other supplies. Hungary says it would cost €18 billion to adjust refineries to process other types of crude.
▇ Surging energy prices have led the European Commission to slash its GDP growth forecast for the EU to 2.7% this year, from 4.0% previously, with growth next year of 2.3%, down from 2.8% predicted earlier.
▇ Economic indicators to watch include German manufacturing PMI for May, which is expected to be little changed from April while euro zone PMI is likely to fall from the previous month.
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