Oil Market Outlook

Oil prices plunged last week as investors reacted to news about then new Omicron coronavirus variant, which has already led to widespread bans on travel from southern Africa.

Rising number of Covid infections in Europe, where some countries have reimposed lockdowns, also hurt sentiment, as did news that US crude inventories rose, contrary to market forecasts of a decline.

However, prices were supported by data showing that releases from the strategic petroleum reserves (SPR) of top consuming countries were smaller than expected. In addition, Opec+ has signalled it will keep January output unchanged because of the SPR releases.

West Texas Intermediate (WTI) crude dropped $7.95 on the week to close at $68.58 per barrel. Brent fell $6.17 to $72.72 and Dubai crude averaged $77.47. Thaioil forecasts that WTI this week will trade between $66 and $73, and Brent between $70 and $76. Prices are expected to recover from what most analysts agree was an overreaction last week, but high case numbers in Europe and the stronger US dollar will remain a concern. Among the factors expected to influence trade:

Top consumers including the US, the UK, China, Japan, South Korea and India have agreed to release oil supplies from their reserves to ease market tightness. The US plans to release 50 million barrels, which was less than expected. It will cause limited impact because 32 million barrels will be returned to the reserves later.

Opec and its allies will meet on Thursday to review output plans for January. In light of the planned SPR releases, the pressure is off Opec+ to step up production to bring down prices. Opec has forecast a flobal oil surplus of more than 1.1 million bpd in January and February. As a result, the alliance will probably keep its January output increase unchanged at 400,000 bpd.

Talks on the nuclear accord between Iran and six world powers resume today. The US has signalled that a resolution is possible, which could lead to easing of sanctions. In that case, Iran could raise oil production and exports by 1 million to 1.5 million bpd.

US crude oil inventories are expected to fall because of the growing domestic demand as refineries resume operations following a maintenance shutdown. However, stocks in the week to Nov 19 fell unexpectedly by 1 million barrels, contrary to forecasts for a decline of 500,000 barrels, due to higher crude oil imports. US output is likely to rise as drilling activity has been increasing for 16 consecutive months, in line with high prices.

Economic indicators to watch include US, Chinese and euro zone manufacturing and services PMI.

For more information visit www.thaioilgroup.com or download the TOP Energy application for iOS or Android mobile devices.