Oil prices (WTI and Brent) tumbled down again during last week: WTI fell by 3.27%; Brent oil, by 3.16%. As a result, the spread of Brent oil over WTI remained nearly unchanged: The premium ranged between $2.53 and $5.73. Based on the latest EIA weekly update, oil stockpiles fell by 6.08Mb. In the U.S, imports fell last week, while, refinery inputs and production rose. Will oil continue its downward trend next week? This week, several reports and events may affect the oil market. These items include: U.S GDP, China’s manufacturing PMI, U.S’s durable goods and EIA oil weekly update.
Here is a weekly outlook and analysis for the oil market for September 23rd to 27th:
Oil Prices – September
During the previous week, crude oil price (WTI) decreased by 3.27% and reached by Friday $104.67/b; further, Brent oil also fell by 3.16% to $109.22/b;
In the chart below are the daily shifts in WTI and Brent oil prices during the year (prices are normalized to January 31st). As seen in the chart, the oil decreased in the past couple of weeks.
The gap between Brent and WTI oil didn’t move much last week as it ranged between $2.53 and $5.73 per barrel. Moreover, during the week, the premium decreased by 0.44%.
The oil stockpiles changed direction and fell by 6.08 MB and reached 1,815.2 million barrels – its lowest level in the past several weeks. The linear correlation between the changes in stockpiles has remained stable at -0.201: this correlation suggests that oil price, assuming all things equal, will rally next week.
Oil imports to the U.S also fell by 1.1% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.266) that implies oil price may rise next week. Conversely, oil production increased; refinery inputs also rose again by 0.4% last week. In total, the rally in production, refinery inputs might loosen the U.S oil market, while the drop in oil imports may tighten the oil market.
The next weekly update will be published on Wednesday, September 25thand will refer to the week ending on September 20th.
Middle East and Oil
The potential backing down of U.S from entering Syrian crisis may have reduced the concerns such a development could have on the oil market and stability of in the Middle East. On the other hand, Libya’s low oil exports, which are around 150k of barrels a day – in 2010 this country produced 1.6 million barrels a day, may keep oil prices high and perhaps even expand the spread between Brent and WTI.
Oil Related News for the Week
Monday – China Manufacturing PMI: This is HSBC’s flash manufacturing PMI survey for September. Last month’s report regarding August 2013 the Manufacturing PMI rallied to 50.1 – i.e. China’s manufacturing sectors is expanding. If in the upcoming report the PMI continues to rise, it could signal growth in China’s economy.
Wednesday – U.S Core Durable Goods: This report will pertain to August 2013. This monthly report may indirectly indicate the changes in U.S. demand for commodities such as oil and gas. As of July 2013, new orders of manufactured durable goods declined to $485 billion; if this report shows another drop in new orders, then it could pull down not only the USD but also commodities prices;
Thursday – Final U.S GDP 2Q 2013 Estimate (final): This will be the third and last estimate of U.S’s second quarter 2013 real GDP growth. In the recent estimate the U.S GDP rose by 2.5% in the second quarter of 2013. If in the last estimate, the growth rate for the second quarter is substantially revised, this could affect oil prices;
Oil Price Forecast and Breakdown
From the supply side, the recent rise in refinery inputs and production could keep pulling down oil price. But the recent drop in oil imports may pressure oil prices up. Further, the U.S oil storage changed direction and fell last week; this is another signal for a decrease in supply or a rise in demand; this, in turn, may suggest the U.S oil market has tightened. From the demand side, next week’s reports including U.S GDP, China’s manufacturing PMI and U.S core durable goods could signal the potential developments in the demand for oil in U.S and China – two leading consumers of oil. If these reports surpass current market expectations, they could positively affect the price of oil. The spread between Brent and WTI may remain around the $4-$5 until new developments in the Middle East or Libya will unfold. Finally, the fundamentals suggest oil prices should keep falling in the mid-term as long as tensions in the Middle East are under control.
The bottom line, on a weekly scale, however, I guess oil price will change direction and rally.
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