The prices of oil (both WTI and Brent) changed course and tumbled down during most of last week: WTI fell by 4.66%; Brent oil, by 5.36%. As a result, the gap between the Brent oil and WTI shrank again to its lowest level since July 2012; the gap between Brent and WTI ranged between $11 and $14. The news from the U.S regarding the lower than expected growth in number of jobs added may have contributed to the decline of oil prices. According to the latest EIA report, oil stockpiles remained virtually unchanged. Moreover, imports, production and refinery inputs rose again during last weeks. The rise in oil supply may have also pulled down the prices of oil. Will oil continue to trade down next week? During next week, several publications may affect the oil market. These items include: U.S retail sales, OPEC monthly update, China’s new loans, U.S industrial production, IEA updated outlook and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for April 8th to April 12th:
Oil Prices – April
During the previous week, crude oil price (WTI) sharply fell again by 4.66% and reached by Friday $92.70/b; moreover, Brent oil also plummeted by 5.36% to $104.12/b; during last month, WTI oil increased by 5.63%; Brent oil declined by 1.22%.
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 prices of oil have tumbled down in the last few days.
The gap between Brent oil and WTI spot oil has contracted again during last week as it ranged between $11 and $14 per barrel. During April, the premium declined by 10.71%.
The oil stockpiles remained virtually unchanged and only slightly declined by 0.1 MB and reached 1,773.3 million barrels. The linear correlation between the changes in stockpiles remained mid-strong and negative: this relation implies that the price of oil, assuming all things equal, will decline again next week.
Conversely, the oil imports to the U.S increased again by 2% last week. The weekly changes in oil imports have a mid-strong negative relation (0.33) that suggests oil prices will decline next week. In other words, the rise in imports implies the supply increased and thus may loosen the oil market in the U.S.
The next weekly report will come out on Wednesday, April 10th and will refer to the week ending on April 5th.
Main Oil Related News Items for the upcoming week
Tuesday – China New Loans: This report will refer to the recent developments in China’s new loans. According to the recent report, the total loans changed course and fell; this report is another indicator to the economic progress of China;
Friday – U.S. Retail Sales Report: this report will show the monthly developments in the retail sales and food services for March; in the recent report regarding February, the retail sales rose by 1.1% from the previous month; gasoline stations sales increased by 5% in February compared to January 2013; this report could signal the developments in U.S’s gasoline demand and thus may affect the prices of oil in the U.S;
OPEC Monthly Report
The OPEC report will show the main shifts in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the developments in the production of OPEC countries during August 2012; this news may affect oil prices (See here a summary of the previous report).
The next report will be published on Wednesday, April 17th.
IEA Monthly Report
This upcoming monthly report will present an updated (for March) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013.
The next report will be published on Thursday, April 18th.
Foreign Exchange and Oil Prices Correlations – April
During last week, the EURO/USD rose by 1.37%. Conversely, the AUD/USD decreased by 0.27% during last week. The correlations among these currencies pairs (Euro/USD) and oil prices sharply weaken. E.g. the linear correlation between the rate of oil and EURO /USD was only 0.05 during March/April. Nonetheless, if the U.S dollar will continue to strengthen against “risk currencies”, this may pull down oil prices.
Oil Prices Outlook and Analysis
From the supply side, the rise in oil imports, refinery inputs and production in the U.S might pull down oil prices. The upcoming OPEC and IEA reports will provide an update to the changes in the global supply of oil and the changes in projected demand. These reports could also affect oil prices, providing they will show big shifts in supply. From the demand side, the upcoming reports regarding the progress of China and Europe might also affect the direction of Brent oil prices. The upcoming reports regarding the U.S economy might provide an update to the expected developments from demand side. If the reports will show growth, they could pull up the prices of oil from the demand side. The difference between Brent and WTI oil ranged between $11 and $14 and might continue to slowly shrink in the coming days as the US economy is slowly recovering (WTI oil) while the EU economy (Brent oil) isn’t progressing. Oil stockpiles remained almost unchanged last week, which could slightly pull down oil prices in the U.S this week. Finally, if major currencies such as the EURO and Aussie will 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 rise next week.
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