Oil prices (WTI and Brent) rose again last week: WTI increased by 2.68%; Brent oil, by 1.85%. As a result, the spread of Brent oil over WTI contracted: The premium ranged between $5.59 and $7.68. The drop in Libya’s oil exports may have partly contributed to the widening of this spread. Based on the recent EIA weekly update, oil stockpiles rose by 1.76Mb. In the U.S, imports, refinery inputs and production rose during last week. Will oil continue to pick up next week? This week, several reports may affect the oil market. These items include: OPEC and IEA monthly update, U.S’s retail sales, China’s trade balance, and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for September 9th to 13th:
Oil Prices – September
During the previous week, crude oil price (WTI) rose by 2.68% and reached by Friday $110.53/b; further, Brent oil also increased by 1.85% to $116.12/b;
In the chart below are the daily shifts in WTI and Brent oil prices in the past several months (prices are normalized to January 31st). As seen in the chart, the oil rallied during recent weeks.
The spread between Brent and WTI oil slightly contracted last week as it ranged between $5.59 and $7.68 per barrel. Further, during the week, the premium fell by 12.11%. Nonetheless, the spread remained mostly higher than the preceding week – partly due to the latest developments in Libya.
The oil stockpiles increased again by 1.76 MB and reached 1,817.21 million barrels. The linear correlation between the shifts in stockpiles has remained stable at -0.196: this correlation suggests that oil price, assuming all things equal, will decline next week.
Oil imports to the U.S rose again by 1.1% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.268) that implies oil price may fall next week. Further, oil production also slightly rose; refinery inputs increased again by 0.1% last week. In total, the rise in production, refinery inputs and imports might loosen the U.S oil market.
The next weekly update will come out on Wednesday, September 11thand will refer to the week ending on September 6th.
Middle East and Oil – The tensions keep oil prices up
The debate over U.S’s involvement in the current turmoil in Syria may keep the tensions in the Middle East high, which tend to affect oil prices. The fear that a U.S intervention will lead to a regional escalation that will involve Iran is keeping oil prices high. I remain skeptical and think these concerns are a bit overblown and oil prices might eventually come down in the coming weeks. Libya’s decline in oil exports to only 150k of barrels a day – in 2010 this country produced 1.6 million barrels a day, may have also contributed to the rally of oil prices and the rise in the spread between Brent and WTI. The upcoming OPEC report could shed some additional light about the changes in Libya’s exports and production. If Libya’s oil exports remain low, it could keep Brent oil price above $110 and the spread between Brent and WTI closer to $10.
OPEC Monthly Report
The OPEC report will present the main changes in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the shifts in the production of OPEC countries during August 2013; this news may affect oil.
The next report will be published on Tuesday, September 10th.
IEA Monthly Report
This upcoming monthly report will present and revise (for August) forecast and analysis for the global crude oil and natural gas market for 2013 and 2014.
The next report will be published on Thursday, September 12th.
Oil Related News for the Week
Monday – China’s Trade Balance: According to the recent monthly update, China’s trade balance fell to a $17.8 billion surplus; if the surplus further falls, it could indicate China’s economy isn’t improving and thus may adversely affect oil prices;
Thursday – EU Industrial Production: This next report will refer to Augusts’ figures. In the latest update, the industrial production rose by 0.7% during July;
Friday –U.S. Retail Sales Report: This monthly report presents the developments in retail sales and food services for August; in the previous report regarding July, the retail sales inched up by 0.2% from the last month; gasoline stations sales rose by 0.9% in July compared to June 2013; this report could signal the changes in U.S’s gasoline demand and thus may affect U.S oil prices;
Oil Price Forecast and Breakdown
From the supply standpoint, the increase in refinery inputs, production and imports could pressure down oil price. The U.S oil storage increased again last week; this serves as a signal for an increase in supply or a drop in demand; this, in turn, may suggest the U.S oil market has loosened. From the demand standpoint, next week’s reports including U.S retail sales, China’s trade balance and EU industrial production could signal the potential developments in the demand for oil in U.S, China and EU, respectively. If these reports surpass current market expectations, they could positively affect the price of oil. The spread between Brent and WTI may resume its rise, if Libya’s oil exports remain low. Finally, the fundamentals suggest oil prices should come down in the near future, alas the tensions in the Middle East keep oil prices elevated.
The bottom line, on a weekly scale I guess oil price continue its upward trend at a slower pace (providing of course there won’t be a sudden escalation in the Middle East (including Syria, Libya, Egypt and Iran).
For further reading: