News Room - Business/Economics

Posted on 30 Nov 2009

Oil market outlook

In a sharp reversal of fortune, oil prices fell more than $5 to touch $72 per barrel in panic selling on Friday after Dubai World sought to defer its debt repayment, spurring investors to sell commodities and stocks worldwide. Gold dropped $12.80 per ounce while Dow Jones lost 154.48 points. The sharp fall caused some buybacks in the oil market, providing a late recovery as prices closed the week at $76.05 per barrel, down $1.42 from the previous week.

 

The possible default of Dubai World's $59 billion in debt shook market sentiment across the world, resulting in a dramatic sell-off in both commodities and equities. Nevertheless, the markets pared some losses during late trading after major banks said their exposure was quite limited.

 

The weak US dollar and smaller-than-expected buildups in US crude stocks lent support to crude prices earlier last week. The dollar fell broadly to a 15-month low against a basket of currencies and to a 14-year low against the yen on expectations that US interest rates would stay low for some time to stimulate the economy. This prompted investors to move away from the safe-haven greenback to riskier assets. However, the Dubai World news bolstered the dollar, and prompted investors to sell risky assets.

 

Mixed US economic data led to crude price volatility last week. Positive reports helped lift demand for higher-yielding assets such as stocks and commodities. Meanwhile, the housing market continued to show signs of improvement as existing and new home sales in October rose by 10.1% and 6.2% respectively, driven by the popular $8,000 tax credit for first-time home buyers. The labour market also stabilised, with jobless claims falling last week to below 500,000 for the first time this year.

 

Disappointing US GDP, however, renewed concerns over the pace of recovery. Data showed the economy expanded in the third quarter by only 2.8% from the previous quarter against the initial estimate of 3.5%. This pushed crude prices down by 2% last Tuesday.

US inventory data was positive for crude prices. Crude stocks for the week ended Nov 20 increased by one million barrels against the expected 1.2 million as imports and output in the Gulf of Mexico rebounded from disruptions caused by tropical storm Ida. However, oil product demand remained weak over the past four weeks, dropping 2.9% from a year ago to 18.7 million bpd.

 

Thaioil estimates that crude prices will trend lower to trade in the range of $72 to $78 on investors' risk aversion. The market will be monitoring Dubai World and the European Central Bank meeting on Thursday. If the ECB decides to pull back the stimulus package or raise interest rates, the US currency will fall further.

 

Singapore gasoline prices fell $1 to settle the week at around $81 a barrel on seasonally lower demand and rising supplies. The gasoline market outlook is expected to remain weak given the persistent oversupply. Sluggish demand in Japan led the country to raise gasoline exports to a four-year high this month, while more Indian supplies are expected to come into Asia due to weak demand in the West.

 

Diesel in Singapore settled the week at around $83 a barrel, down nearly $1 from a week earlier. Prices this year have failed to receive support from seasonal stockpiling due to the warmer winter in Japan and globally high product stocks. Besides, warmer-than-average temperatures in the US and Europe through to February are likely to limit any rise in diesel prices. Demand is not enough to draw down inventories, which will remain very high in both the US and Europe.