The prices of crude oil (both WTI and Brent) resumed their downward trend during most of last week: WTI fell by 3.6%; Brent oil, by 3.36%. As a result, the gap between the Brent oil and WTI slightly contracted again by the end of the week; the gap between Brent and WTI ranged between $11 and $13. According to the recent EIA report, oil stockpiles increased again by 2.6Mb. Moreover, imports, production and refinery inputs also increased during the previous week. The rise in oil supply may further pull down the prices of oil. Will oil change course next week? During next week, several publications may affect the oil market. These items include: U.S GDP for Q1 2013, EU and China’s manufacturing PMI, U.S core durable goods, and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for April 22nd to April 26th:
Oil Prices – April
During the previous week, crude oil price (WTI) fell again by 3.6% and reached by Friday $88.01/b; moreover, Brent oil also decreased by 3.36% to $99.65/b; during the month, WTI oil decreased by 9.48%; Brent oil declined by 9.43%.
In the chart below are the changes in WTI and Brent oil prices during February-April (rates are normalized to January 31st). As seen below, the rates of oil have had a downward trend in recent weeks.
The gap between Brent oil and WTI spot oil remained in the range between $11 and $13 per barrel. During April, the premium declined by 9%.
The oil stockpiles increased again by 2.6 MB and reached 1,781.8 million barrels. The linear correlation between the changes in stockpiles remained mid-strong and negative: this correlation implies that the price of oil, assuming all things equal, will decline again next week.
Furthermore, oil imports to the U.S also rose by 0.4% last week. The weekly developments in oil imports have a mid-strong negative relation (-0.33) that suggests oil prices may further decline next week. Oil production and refinery inputs also rose last week. In other words, the rise in supply suggests the oil market has slightly loosened in the U.S.
The next weekly report will come out on Wednesday, April 24th and will refer to the week ending on April 19th.
Main Oil Related News Items for the upcoming week
Wednesday – U.S Core Durable Goods: This report will pertain to March 2013. This report may indirectly indicate the changes in U.S. demand for commodities such as oil. As of February, new orders of manufactured durable goods increased to $232.10 billion; if this report will present another rise in new orders then it could pull up oil prices;
Friday – First U.S GDP 1Q 2013 Estimate: In the previous estimate the U.S GDP edged up by 0.1% in the fourth quarter of 2012. If the growth rate from fourth quarter of 2012 to the first quarter of 2013 will dwindle again, this could affect not only the US dollar but also oil prices.
Foreign Exchange and Oil Prices Correlations – April
During the previous week, the EURO/USD decreased by 0.5%. Moreover, the AUD/USD sharply fell by 2.2% during last week. The correlations among these currencies pairs (AUD /USD) and oil prices sharply strengthened. E.g. the linear correlation between the price of oil and AUD /USD was 0.42 during March/April. If the U.S dollar will continue to rise against “risk currencies”, this may pull down oil prices.
Oil Prices Outlook and Analysis
From the supply side, the ongoing increase in imports, refinery inputs and production in the U.S might pressure down oil prices. The increase in storage is another indication for a rise in supply or a drop in demand, which could also suggest that oil prices may decline. On the other hand, the sharp fall in oil prices in the past couple of week might bring a short time shift in market sentiment, which could rally oil prices at least at the beginning of the week. From the demand side, the upcoming reports regarding the U.S GDP, core durable goods, EU and China manufacturing PMI might provide an update to the expected changes from demand side. If the reports will show lower than expected results, they could drag down the prices of oil from the demand side. The gap between Brent and WTI oil ranged between $11 and $13 and might resume its downward trend in the coming days as the US economy (WTI oil) is doing better than recovering the EU economy (Brent oil). Finally, if major currencies such as the EURO and Aussie will continue to depreciate against the U.S. dollar, they may also pull down oil prices. The bottom line, I guess the prices of oil will continue to fall next week.
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