Crude Oil Prices – Weekly Outlook August 20-24

Crude oil prices continued their upward trend during last week; the gap between Brent and WTI also expanded during most of the week. During last week, WTI oil rose by 3.4%; Brent oil, by 1.9%. The concerns over the rising tensions between Iran and Israel might be contributing to the rally of oil rates. The recent news of the contraction in the EU GDP by 0.2% during Q2 2012 may have curbed the rise in oil prices. In the U.S the financial reports showed a mixed signal as to the progress of the economy: the Philly Fed index was still negative, while the retail sales edged up during July.  

During the upcoming week there are several reports that may affect the crude oil market such as: Japan’s trade balance, U.S core durable goods, the minutes of FOMC meeting, Canada’s retail sales, Euro Area and China’s manufacturing PMI.

Here is a weekly outlook and analysis of the crude oil market for August 20th to 24th:

Oil Prices –August

During last week, crude oil price (WTI) rose by 3.38% and reached $96.01/b; Brent oil also increased by 1.94% to $115.77/b; during August, WTI spot oil increased by 9.03%; Brent oil, by 9.29%.

In the chart below are the changes in WTI and Brent oil prices during the month (prices are normalized to July 31st). It show how both oil prices have had an upward trend during recent weeks.

oil forecast Brent and WTI spot rates  2012 August 20-24

Premium of Brent over WTI – August

The difference between Brent oil and WTI spot oil expanded to $19-$22 per barrel range. During August the premium rose by 10.58%.

Difference between Brent and WTI  August 20-24 2012

Oil Stockpiles –Declined by 4.5 Mb

The oil stockpiles declined again during the previous week by 4.5 M bl to reach 1,795.6 million barrels. The upcoming report will be published on Wednesday, August 22nd and will refer to the week ending on August 17th.

Main Oil Related News Items for the upcoming week

Tuesday – Japan’s Trade balance: The Japanese trade balance deficit for June fell by 51.4%, and reach 300 billion YEN (roughly $3.79 billion) deficit (seasonally adjusted figures). This fall is due to the drop in imports by 6.5%, and despite the decline in exports by 1.4%;

Wednesday – Retails Sales Canada: This report may affect the direction of USD/CAD, which is strongly correlated with energy prices. In the previous report regarding May, retails sales rose by 0.3%;

Wednesday – Minutes of FOMC Meeting: Following the latest FOMC meeting, in which it was decided to keep the monetary policy unchanged without introducing any additional stimulus plans, the bullion market reacted to this news – gold and silver prices declined the next day. The minutes of the recent FOMC meeting might add some insight behind this non-decision and the future steps of the FOMC especially in anticipation of the upcoming FOMC meeting at the middle of September;

Wednesday  – China flash Manufacturing PMI: during July 2012 the PMI rose to 49.5, which means the manufacturing conditions are still not progressing in China; if this negative index will continue, this may adversely affect crude oil prices, unless China will act to stimulate its economy;

Thursday – Flash Euro Area Manufacturing PMI: In the previous report the Euro Zone Manufacturing PMI declined to 44.1. This report will provide an indicator to the economic progress of the Euro zone and the leading economies’ manufacturing conditions; this news, in turn, might affect the Euro/USD exchange rate and consequently also oil rates;

Forex and Oil Prices Relation – August

The EURO/USD currency pair rose last week by 0.37%; on the other hand, the AUD/USD declined by 1.49%. There are still positive correlation among these currencies pairs (EURO/USD, AUD/USD) and crude oil rate. E.g. the linear correlation between the oil price and Euro/USD is 0.57 during July/August. If the U.S dollar will depreciate against the EURO and Aussie dollar, it may help rally oil prices.

Oil Prices Outlook and Analysis

The difference between Brent and WTI oil expended during most of last week and may continue on this direction during the upcoming week. The tensions in the Middle East may continue to contribute to the rise of oil prices. The threats of Iran to close down the Strait of Hormuz could impede the transport of oil – nearly 20% of world’s petroleum is passed through this Strait. The upcoming U.S reports including durable goods and FOMC meeting minutes could also affect oil rates. On the other hand, the upcoming EU and China reports regarding manufacturing PMI could pressure down crude oil prices, if these reports won’t be positive. Finally, if major currencies including EURO and Aussie dollar will resume their rally against the U.S. dollar, then they might also push up oil prices.

I speculate during the upcoming week, WTI oil will trade between $93 and $100 and Brent between $112 and $120.

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