During last week, the prices of oil (both WTI and Brent) rallied: WTI rose by 3.76%; Brent oil, by 2.2%. As a result, the difference between the Brent oil and WTI contracted again to its lowest level since July 2012; the difference between Brent and WTI ranged between $12 and $13. According to the latest EIA report, oil stockpiles declined again by 1.9 MB. Will oil continue to rally next week? During the upcoming week, several publications may affect the oil market. These items include: U.S manufacturing PMI, ECB rate decision, U.S factory orders, employment report and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for April 1st to April 5th:
Oil Prices – April
During last week, crude oil price (WTI) increased again by 3.76% and reached by Friday $97.23/b; moreover, Brent oil also rose by 2.2% to $110.02/b; during the month, WTI oil rose by 5.63%; Brent oil declined by 1.22%.
In the chart below are the developments in WTI and Brent oil prices during February-March (rates are normalized to January 31st). As seen below, the rates of oil have rallied in the last couple of weeks.
The difference between Brent oil and WTI spot oil has sharply shrank during last week as it ranged between $12 and $13 per barrel. During March, the premium plummeted by 33.83%.
The oil stockpiles decreased again by 1.9 MB and reached 1,773.4 million barrels. The linear correlation between the shifts in stockpiles remained mid-strong and negative: this relation suggests that the price of oil, assuming all things equal, will slightly increase again next week.
Conversely, the oil imports to the U.S rose by 0.7% last week. The weekly changes in oil imports have a mid-strong negative relation (0.33) that suggests oil prices will moderately decline next week. In other words, the rise in imports suggests the supply increased and thus may loosen the oil market in the U.S.
The next weekly update will come out on Wednesday, April 3rd and will refer to the week ending on March 29th.
Main Oil Related News Items for the upcoming week
Tuesday – U.S Factory Orders: in the previous report factory orders fell by 2%; this report will offer some insight regarding the progress of the U.S economy and could affect oil prices;
Thursday – ECB Rate Decision: The current 0.75% rate hasn’t changed since July 2012. Many think ECB President Mario Draghi will eventually have to lower the interest rate to help rally the slowly contracting EU economy. The question is when this decision will take place. Currently, the expectations are that Draghi will keep the rate unchanged once again;
Friday – U.S. Non-Farm Payroll Report: in the previous report, the labor market sharply increased again: the number of non-farm payroll employment rose by 236k; if in the forthcoming report the employment will rally again by well above 150 thousand (in additional jobs), this help rally oil prices (see here my last review on the U.S employment report);
Foreign Exchange and Oil Prices Correlations – April
During the previous week, the EURO/USD slipped again by 1.33%. Moreover, the AUD/USD decreased by 0.32% during last week. The correlations among these currencies pairs (Euro/USD) and oil prices slightly weaken but remained mid-strong. E.g. the linear correlation between the rate of oil and EURO /USD was 0.43 during March. If the U.S dollar will continue to strengthen against the “risk currencies”, this may drag down oil prices.
Oil Prices Outlook and Analysis
Following the rally in the price of oil last week, oil prices might further rise this upcoming week. From the supply side, the rise in oil imports and production in the U.S might ease the rally in oil prices. From the demand side, the low to no growth in Europe might also curb the rise in Brent oil prices. The upcoming reports regarding the U.S economy might shed some light on the expected developments from demand side. If the reports will show growth, they could pressure up the prices of oil from the demand side. The gap between Brent and WTI oil ranged between $12 and $13 and might continue to slowly contract in the coming days as the US economy is slowly recovering (WTI oil) while the EU economy (Brent oil) isn’t improving. Oil stockpiles only slightly fell last week, which could slightly pull up oil prices in the U.S this week. Finally, if major currencies such as the EURO will continue to depreciate against the U.S. dollar, they may curb the rise of oil prices. The bottom line, I guess the prices of oil will slightly increase again next week.
My guess is that WTI oil will range between $94 and $99 and Brent between $108 and $112 during the week.
For further reading: