Oil Weekly Outlook for April 29- May 3

The prices of crude oil (both WTI and Brent) rallied during most of last week: WTI spiked by 5.67%; Brent oil, by 3.52%. As a result, the gap between the Brent oil and WTI contracted again; the difference between Brent and WTI ranged between $9 and $11. According to the recent EIA report, oil stockpiles also changed course and fell by 1.9Mb. Moreover, imports, and refinery inputs also decreased while production rose during last week. The drop in oil supply may further pull up the rates of oil. Will oil continue to rise next week? During the upcoming week, several publications may affect the oil market. These items include: U.S non-farm payroll report, U.S and China’s manufacturing PMI, U.S trade balance, and EIA oil weekly report. 

Update May 1st: the recent PMI reports of China and U.S showed a drop in the growth rate of the manufacturing sectors – i.e. these nations’ manufacturing is still growing but at a slower pace. This news may have contributed to the plunge in the prices of oil prices on Wednesday.  

Here is a weekly outlook and analysis for the crude oil market for April 29th to May 3rd:

Oil Prices – May

During last week, crude oil price (WTI) bounced back by 5.67% and reached by Friday $93/b; moreover, Brent oil also increased by 3.52% to $103.16/b; during the month, WTI oil decreased by 4.35%; Brent oil declined by 6.24%.

In the chart below are the shifts in WTI and Brent oil prices during February-April (rates are normalized to January 31st). As seen below, the rates of oil have rallied last week.

oil forecast Brent and WTI April 29-May 3 2013

Premium of Brent over WTI – May

The difference between Brent oil and WTI spot oil contacted again to the range between $9 and $11 per barrel. During April, the premium declined by 20.5%.

Difference between Brent and WTI  April 29-May 3 2013

Oil Stockpiles – Decreased by 1.9Mb

The oil stockpiles slightly fell again by 1.9 MB and reached 1,779.8 million barrels. The linear correlation between the shifts in stockpiles remained mid-strong and negative: this correlation suggests that the price of oil, assuming all things equal, will rise again next week.

Furthermore, oil imports to the U.S sharply fell by 1.9% last week. The weekly developments in oil imports have a mid-strong negative relation (-0.33) that implies oil prices may further rise next week. Oil production rose again while refinery inputs fell last week. In other words, the drop in refinery inputs and imports might suggest the oil market has slightly tightened in the U.S.

The next weekly report will be published on Wednesday, May 1st and will refer to the week ending on April 26th.

Main Oil Related News Items for the upcoming week

Tuesday – China Manufacturing PMI: Based on the recent report regarding March 2013 the Manufacturing PMI edged up to 50.9. If in the upcoming report the PMI will fall below the 50 point mark, it could signal slowdown in China’s economy. If the index will dwindle, this may also adversely affect oil prices;

Wednesday – U.S. Manufacturing PMI: This report will refer to April 2013. During March 2013 the index fell to 51.3%; this means the manufacturing is growing at a slower pace; this index may affect crude oil markets.

Friday – U.S. Non-Farm Payroll Report: in the previous report non-farm payroll employment rose by only 88k; if in the upcoming report the employment will rise again by below 150 thousand (in additional jobs), this may pull down oil prices (see here my last review on the U.S employment report);

Foreign Exchange and Oil Prices Correlations – May

During last week, the EURO/USD slightly rose by 0.17%. The AUD/USD inched down by 0.01% during the previous week. The correlations among these currencies pairs (AUD /USD) and oil prices remained strong. E.g. the linear correlation between the price of oil and AUD /USD was 0.57 during March/April. If the U.S dollar will depreciate against “risk currencies”, this may pull up oil prices.

Oil Prices Outlook and Analysis

From the supply side, the sudden drop in imports and refinery inputs in the U.S might pressure up oil prices. On the other hand, the ongoing rise in production is likely to curb the rally in oil prices. The decrease in storage is another indication for a drop in supply or a rise in demand, which could also suggest that oil prices may increase. The sharp fall in oil prices at the first three weeks of April might keep them rising as part of a correction to that trend. From the demand side, the upcoming reports regarding the U.S non-farm payroll report, American trade balance, U.S and China manufacturing PMI might provide an update to the expected developments from demand side.  If the reports will show lower than expected results, they could pull down the prices of oil from the demand side. The gap between Brent and WTI oil ranged between $9 and $11 and might continue 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 appreciate against the U.S. dollar, they may also pull up oil prices. The bottom line, I guess the prices of oil will continue to rise next week.

For further reading: