The price of oil (WTI and Brent) bounced back last week: WTI rose by 2.14%; Brent oil, by 1.66%. As a result, the premium of Brent oil over WTI contracted; the premium ranged between $1.65 and $3.83. Based on the recent EIA weekly report, oil stockpiles rose by 1.6Mb. In the U.S, imports and production increased again while refinery inputs declined during last week. Will oil continue to trade up next week? This week, several reports may affect the oil market. These items include: China’s new loans, OPEC monthly report, American trade balance, and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for August 5th to August 9th:
Oil Prices – August
During last week, crude oil price (WTI) rose by 2.14% and reached by Friday $105.50/b; further, Brent oil also increased by 1.66% to $108.11/b;
In the chart below are the changes in WTI and Brent oil prices in recent months (prices are normalized to January 31st). As seen in the chart herein, the oil has rallied during most of July.
The gap between Brent and WTI spot oil bounced back and rose last week as it ranged between $1.65 and $3.83 per barrel. Nonetheless, during the week, the premium fell by 18.62%.
The oil stockpiles changed direction and rose by 1.6 MB and reached 1,817.2 million barrels. The linear correlation between the shifts in stockpiles has slightly strengthened to -0.21: this correlation suggests that oil price, assuming all things equal, will fall next week.
Oil imports to the U.S also increased by 2.5% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.289) that pull down oil price next week. Moreover, oil production rose; refinery inputs decreased again last week. In total, the drop in production and imports might tighten the U.S oil market.
The next weekly report will come out on Wednesday, August 7thand will refer to the week ending on August 2nd.
OPEC Monthly Report
The OPEC report will show the main developments in crude oil and natural gas’s global supply and demand; the report will also refer to the changes in the production of OPEC countries during July 2013;
The next report will be published on Friday, August 9th.
IEA Monthly Report
This upcoming monthly report will present an updated (for July) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013.
The next report will come out on Friday, August 9th.
Oil Related News for the Week
Monday – Australian Retail Sales: In the previous update, the seasonally adjusted retail sales slightly rose by 0.1% during May; this news may affect the Aussie dollar, which tends to be correlated with oil rates;
Tuesday – Reserve Bank of Australia – Cash Rate Statement: In the latest rate decision of RBA it left the cash rate at 2.75% – its lowest level in years, which contributed to decline of the Aussie dollar. The current expectations are that RBA will cut the interest rate again by 0.25 percentage points, which is likely to keep the Aussie weak against leading currencies;
Tuesday – American Trade Balance: This monthly update for June will show the changes in imports and exports of goods and services to and from the U.S, such as oil and gas; based on the recent American trade balance update regarding May the goods and services deficit expanded to $45 billion;
Wednesday – German Industrial Production: The upcoming report will refer to July 2013. In the last update, the industrial production fell by 1% during June;
Thursday – China Manufacturing PMI: Back in June 2013 the Manufacturing PMI slipped to 50.1 – i.e. China’s manufacturing sectors is still expanding but at a slightly slower pace; the recent flash PMI report was well below the 50 point market. If the index will decrease, this may also adversely affect oil price;
Friday – China New Loans: This report will pertain to the recent developments in China’s new loans. Based on the recent report, the total loans sharply increased rose again; this report is another indicator for China’s economic growth;
Oil Price Forecast and Analysis
From the supply side, the recent rise in production and imports could drag down oil price. Conversely, the moderate decline in refinery inputs may pull up oil price. The recent rise in U.S storage is another indication for a moderate increase in supply or a decrease in demand, which could also suggest that the U.S. oil market has slightly loosened. From the demand side, the upcoming reports including U.S trade balance, China’s new loans and German industrial production could signal the direction of the demand for oil in U.S, Europe and China. If these reports will positively surprise the current market expectations and surpass the current expectations, they could positively affect oil prices. The situation in Egypt is likely to keep the volatility of oil prices high. If the situation will cool down, oil prices might further pull back. Finally, the premium of Brent over WTI remains low and under $5; it is likely to remain at its current range as the U.S oil market further tightens compared to the European market.
The bottom line, on a weekly scale I guess oil price might change direction and slightly fall.
For further reading: