Oil Market Outlook

Oil Market Outlook

Crude oil prices increased last week after a report showed that China's oil demand in June surged to 9.9 million barrels per day, the highest level in four months. China's oil demand is also forecast to grow 5% this year despite modest economic expansion.

Also helping to support prices last week was a larger-than-expected drop in US crude oil inventories, improving US industrial production, housing and labour market data, as well as concerns about supply shortages in light of unrest in Egypt and Libya.

However, selling for technical profit occurred at midweek after oil prices rose to a level showing that speculation was too high. China's weak second-quarter GDP growth also pressured oil prices, while the market debated Fed Chairman Ben Bernanke's comments about possible scaling back of stimulus later this year if the US economy improves. While there is no clear schedule for tapering off QE, the Fed expects to continue its asset purchases until the unemployment rate falls to 6.5% from 7.6% now, and inflation rises to 2%. June inflation was 1.8%.

West Texas Intermediate went up $2.10 per barrel to close at $108.05 while Dubai crude gained $1.96 to $105.30. Brent crude fell 74 cents to close at $108.07.

Thaioil expects Brent to move in the same range of $104 to $110 per barrel this week and WTI in the range of $103-109. The markets will be preoccupied mainly with manufacturing PMI reports from the United States, China and Europe. All are expected to be weak, with possible implications for lower oil demand.

However, crude prices should continue to receive support from US inventories that are expected to decline. as well as geopolitical factors including Middle East tensions. Among the key factors expected to affect oil prices this week:

FThe US Flash Manufacturing PMI, euro zone Markit Manufacturing Flash PMI and China HSBC Flash PMI all will be released this week. Markets continue to worry that the manufacturing sectors of China and Europe will continue to shrink and thus affect oil demand.

FUncertainty over Egypt's political future continues after its interim president has sped up the process of appointing a cabinet in line with the plan to prepare for elections in the next six months. Supporters of ousted president Morsi continue their protests although violence has been limited.

FUS crude oil inventories are expected to continue to fall after production capacity increased as many refineries resumed operations after maintenance shutdowns. In the meantime markets will watch gasoline inventories, which last week increased more than expected even though it is the summer driving season. This will affect US crude oil and gasoline futures prices.

FContinuing strife in the Middle East and North Africa may affect crude oil production and exports. Recent disruptive events have included the seizure of a Libyan crude export port. A car bombing in Lebanon as well as the death of Syrian reporter known to support President Assad also underlined the tensions in the region.

FOther key economic figures due to be released this week include existing and new home sales, durable goods orders, jobless claims and consumer sentiment in the United States, as well as euro zone consumer confidence and the German Flash Manufacturing PMI.

For more information, visit http://www.thaioilgroup.com

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