Posted on 11 Feb 2008
Oil Market Outlook
The West Texas Intermediate (WTI) price fell more than $3 a barrel last week on poor US economic data. Unexpected job cuts in manufacturing and construction, and the decline in the services index to a seven-year low intensified concerns over a US economic slowdown.
US economic problems have started to spread into Europe, forcing the Bank of England to cut its interest rate by 25 basis points on Thursday, with the European Central Bank expected to follow suit in the near future. A global economic slowdown inevitably softens energy demand, but the US government stimulus plan and central bank interventions could diminish the impact on global consumption.
Fundamentally, concerns over tight global stocks are starting to ease as US crude inventories begin a steady upward trend ahead of the peak refinery maintenance season. Nevertheless, Opec's decision at its meeting in March will be the key factor if it decides to cut output in order to tighten the global market.
Gasoline prices in Singapore eased to below $99 a barrel last week, tracking the Dubai crude price. However, the market remained supportive on strong demand amid tight regional supplies. Indonesia continued to buy gasoline in the spot market to replenish low domestic stocks.
Rising gasoline demand during the Southern hemisphere summer has drawn many barrels from Singapore to Australia to cover a domestic supply shortage, as more than 100,000 barrels per day of production were offline due to outages and routine maintenance. In addition, China will trim gasoline exports this month to ensure sufficient supply during the Chinese New Year holidays. We expect the Asian gasoline market to stay firm this week on healthy demand from Indonesia, Vietnam, and Australia.
The Asian diesel market remained under pressure on reduced Chinese demand. China, the world's second-biggest energy consumer, has lowered its diesel imports for February as domestic output and supplies improve, after intense buying during the past three months. Chinese refineries have increased production to near record levels of 2.5 million barrels per day this month, up 3% from January.
Meanwhile, Chinese domestic demand is down because of the the week-long holiday as well as transport disruptions due to chaotic winter weather. However, extra demand from Australia and expectations of lower exports from North Asian refiners in March helped to limit the downside in Asian diesel prices last week. We expect diesel demand to pick up at the end of this week after buyers come back from the holidays.
