Oil Outlook for August 4-8

The oil market cooled down in the past week despite the decision of Europe and U.S to impose economic sanctions on Russia, which could bring down the oil exports from Russia to the west. Currently, the sanctions aren’t expected to impede Russia’s oil production only down the line. By the end of last week, WTI and Brent fell by 4.1% and 3.3%, respectively. As a result, the premium of Brent oil over WTI expanded; the premium ranged between $5.9 and $7.85. This week, the following reports will be released: U.S factory orders, EU retail sales, and the EIA’s oil weekly report.

Here is a weekly outlook for the oil market for August 4th-8th:   

Oil Prices –August

During the previous week, crude oil price (WTI) declined by 4.1% and reached by Friday $97.88/b; moreover, Brent oil also decreased by 3.3% to reach $104.84/b;

In the chart below are the daily shifts in WTI and Brent oil prices during July (prices are normalized to May 30th, 2014).

oil forecast Brent and WTI August 3 2014

Premium of Brent over WTI – August

The spread between Brent and WTI oilwas in the range between $5.9 and $7.85 per barrel. During the week, the premium grew by $1.13 per barrel.

Difference between Brent and WTI August 3 2014Oil Stockpiles, Demand and Supply

The oil stockpiles declined by 0.5 MB and reached 1,820 million barrels. The linear correlation between the changes in stockpiles has declined again to -0.155. Let’s turn to the recent developments in supply/demand:

Supply: Oil imports increased by 1.6% during last week. Moreover, oil production remained unchanged; the total supply rose by 0.8%;

Demand: Refinery inputs also rose by 0.5% last week. In total, the demand grew slower than the supply. This recent development may keep drag down oil prices. The linear correlation between the weekly price of oil lagged by on period and the shifts in the gap between supply and demand is mid-strong and negative at -0.205.

The next weekly report will be published on Wednesday, August 6th and will refer to the week ending on August 1st.

Oil Related News for the Week

Here are several news items that could affect oil prices:

Monday – U.S Factory Orders: This report shows the developments in U.S. factory orders of manufactured durable goods in July; in the latest report factory orders fell by 0.5%;

Monday – EU Retail Sales: This monthly report will refer to June 2014. In the recent report, the volume of retail trade remained unchanged during May;

In conclusion…

The recent drop in oil prices may change course if the demand for oil in the U.S keeps picking up and stockpiles continue to contract. Finally, the tensions between Russia and the West could keep oil prices elevated in the short term.

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