Crude oil prices continue to dwindle with an unclear trend but at least the premium of the Brent oil over WTI slipped during recent weeks. Furthermore, during last week Brent oil edged down 1.27% and WTI by 0.46%. The tensions between Iran and the West are still a cause for concern but they seem to take the back seat during recent weeks. The recent OPEC report showed there is no cause for concern for now as OPEC’s oil production continues to rise mainly due to Libya’s growth in production, which is still isn’t at its production level from 2010.
Here is an outlook and analysis on the crude oil market for the week of April 16th to 20th:
Crude Oil Prices – April Update
On Friday, April 13th crude oil price (WTI) declined by 0.78% and reached $102.83/b; Brent oil price also slipped by 0.15% to $121.58/b; during last week, WTI spot oil edged down by only 0.46% and Brent oil by 1.27%.
In the chart below are the changes in WTI and Brent oil prices during March (prices are normalized to March 30th).
The gap between Brent oil and WTI spot oil slightly declined during last week, and was in the range of $17-$18.5 per barrel. During April the premium decreased by 9.81%.
During April the correlation between Brent oil price and WTI oil price (daily percent changes) remained high at 0.78. This means the relation between WTI and Brent oil prices is still robust and strong.
The standard deviations of oil prices slightly rose during April compared with March’s figures. Nevertheless, the April standard deviations are still below the high levels recorded during February 2012.
OPEC’s Oil Production Slightly Rose in March
According to the OPEC April report the OPEC oil production slightly rose during March. This rise was mainly due to the ongoing growth in Libya’s oil production.
Libya’s oil production rose again by 112 thousand bbl/d to 1,372 thousand bbl/d after it has reached a near halt during most of 2011. The current production levels are still nearly one third below Libya’s average oil production of 1.6 million bbl/d in 2010.
Crude Oil Stockpiles –Declined Last Week
U.S. crude oil stockpiles decreased last week by 3.9 million barrels. For the week ending on April 6th oil stockpiles reached 1,765.854 million barrels.
The upcoming report will be published on Wednesday, April 18th and will refer to the week ending on April 13th.
Main Oil Related News Items
Monday–U.S. Retail Sales Report: in the recent report regarding February, the retail sales increased by 1.1% from the previous month; gasoline stations sales also increased by 1.4% in February; this report could signal the development in U.S’s gasoline demand and thus may affect crude oil prices (for my review of the recent retail sales report).
Tuesday–German ZEW economic sentiment: The upcoming publication will refer to the ZEW indicator of economic sentiment for Germany for April 2012; if Germany’s economy will keep showing progress, the Euro will probably remain strong against other currencies; the Euro is strongly linked with crude oil prices;
Tuesday– U.S. Housing Starts and Building Permits: the U.S Census Bureau will publish the U.S housing starts and building permits report for March; in the previous report, the adjusted annual rate of U.S housing starts reached 698,000 in February 2012 – a 1.1% decrease; building permits rose by 5.1% (M-o-M). If this report will continue to show a rise in the building permits rate, it may indicate that the U.S housing market is slowly recovering from its slowdown (the recent U.S building permits and housing starts review);
Tuesday– Bank of Canada’s Overnight Rate: The Bank of Canada will publish its decision vis-à-vis the overnight interest rate, which remained flat at 1% in the previous decision. The BOC may continue its policy of keeping the interest rate unchanged; the CAD is strongly linked with crude oil prices;
Thursday– U.S. Jobless Claims Weekly Update: this weekly update will refer to the changes in the initial jobless claims for the week ending on April 14th; in the previous report the jobless claims rose to 380,000; this upcoming weekly update may affect the strength of the US dollar and consequently oil prices;
Thursday– U.S. Existing Home Sales: This report will refer to the developments in U.S. existing home sales during March 2012; in the recent report regarding February 2012 the number of homes sold decreased: the seasonally adjusted annual rate reached 4.59 million home sales – a 0.9% decline; if this trend will continue it may weaken the U.S dollar (for the recent existing home sales review);
Thursday– Philly Fed Manufacturing Index: This monthly survey provides an estimate for the progress of the US economy as it measures the manufacturing conditions. In the previous March survey, the growth rate moderately rose to +12.5 in March. If this trend will continue this index may positively affect not only U.S Dollar but also oil prices (the recent Philly Fed review);
Thursday–U.S. Natural Gas Storage Weekly Report: this EIA weekly report regarding the U.S. natural gas market will update on the recent changes natural gas production, storage, consumption and price developments for the week ending on April 13th; in the recent update, natural gas storage slightly rose by 8 Bcf to 2487 Bcf;
Forex and Crude Oil Prices – April
The EURO/USD exchange rate edged down during last week by 0.15%. On the other hand, the AUD/USD rose by 0.62%. There are still positive and strong linear correlations among these exchange rates (EURO/USD, AUD/USD) and crude oil prices. If the U.S dollar will depreciate against the EURO and Aussie dollar during the week, it may positively affect crude oil prices.
Crude Oil Prices Outlook and Analysis:
The premium of Brent over WTI seems to have declined in recent weeks form the $20-$21 range to $17-$18 range. This trend may continue as the demand for oil in Europe and the U.S will decline; currently there doesn’t seem to be a shortage in supply despite the sanctions on Iran. The IEA also reported that OECD oil stockpiles are still below the 5-year average, but the gap narrowed to 13.9 mb in February from 40.4 mb in January. This might suggest the oil market is less tight than in recent weeks. If the Iran issue won’t rise again during the week, then oil prices may continue to dwindle as they did during last week.
In the upcoming week there are several financial reports and events that may affect crude oil prices including the U.S Philly Fed Survey, Canada’s rate decision, U.S retails sales report, U.S housing starts and U.S jobless claims weekly update. If the U.S reports will mostly be positive and show signs of growth then they may rally crude oil prices. Finally, if major currencies including EURO, and Aussie dollar will appreciate against the U.S. dollar, it may also positively affect crude oil prices.
I speculate during the upcoming week, WTI oil price will trade between $98 and $105 and Brent between $118 and $124.
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