Oil Weekly Outlook For December 17-21

During last week, crude oil prices bounced back and slightly rose along with many “risk currencies” such as Euro, Canadian dollar and Aussie dollar. According to the recent EIA report, the oil stockpiles increased again by 5.9MB. During last week, WTI oil rose by 0.93%; Brent oil, by 1.38%. As a result, the gap between the Brent oil and WTI remained almost unchanged; further, the difference between Brent and WTI ranged between $20 and $22. The OPEC report showed OPEC’s oil production remained stable; OPEC Summit was concluded with OPEC keeping the quota unchanged. The IEA report showed non-OPEC production rose last month.  Will oil change direction and fall next week? During the upcoming week, several publications may affect the oil market. These items include: U.S core durable goods, Philly Fed index, Canada’s GDP and EIA oil weekly update.

Here is a weekly projection and analysis for the crude oil market for December 17th to 21st:

Oil Prices – December

During last week, crude oil price (WTI) rose by 0.93% and reached by Friday $86.73/b; Brent oil also increased by 1.38% to $108.5/b; during November, WTI oil fell by 2.45%; Brent oil, by 2.45%.

In the chart below are the developments in WTI and Brent oil prices during the month (rates are normalized to November 30th). As seen, the prices of oil had a moderate downward trend during the month.

oil forecast Brent and WTI spot rates  2012  December 17-21Premium of Brent over WTI – December

The difference between Brent oil and WTI spot oil remained stable during last week at the range between $20 and $22 per barrel. During the month the premium fell by 2.46%.

Difference between Brent and WTI December 17-21 2012Oil Stockpiles – Rose Again by 5.9 Mb

The oil stockpiles rose again by 5.9 MB and reached 1,793.4 million barrels. The linear correlation between the changes in stockpiles tends to be negative: this correlation implies that the price of oil, assuming all things equal, will slightly decline next week. The upcoming report will come out on Wednesday, December 19th and will refer to the week ending on December 14th.

OPEC Monthly Report and OPEC Summit

The OPEC report was published last week. It showed the OPEC oil production remained virtually unchanged at 30.8 million bbl/d during November. Thus, despite the sanctions on Iran its oil production remained stable even though the production is still lower than the beginning of the year.

The OPEC Summit was concluded last week with no change in its OPEC quota. This news is likely to ease the pressure on oil prices.

IEA Monthly Report

According to the recent IEA report, non-OPEC countries’ oil production is rose by 0.7 mb/d in November to reach 54 mb/d. This increase was mostly due to the rise in U.S, North Sea and Brazil’s oil production.  In 2013 the growth is projected at 0.9 mb/d to reach 54.2 mb/d.

Main Oil Related News Items for the upcoming week

Thursday – Philly Fed Manufacturing Index: In the recent survey, the growth rate fell to -10.7 in November. If the index will continue to fall it may adversely affect commodities prices (the previous Philly Fed review);

Friday – U.S Core Durable Goods:. This report may indirectly indicate the developments in U.S. demand for commodities such as oil. As of October 2012, new orders of manufactured durable goods increased to $216.9 billion; if this report will show a gain in new orders then it could pull up not only the US dollar but also commodities;

Friday – Canada’s GDP by Industry: In the recent update for September, the real gross domestic product edged up again by 0.1%. This report may affect the strength of the Canadian dollar currency, which is strongly correlated with commodities;

Foreign Exchange and Oil Prices Relation – December

The EURO/USD rose last week by 1.83%. Furthermore, the AUD/USD also rose by 0.74% during last week. This upward trend may have positively affected oil prices. The correlations among these currencies pairs (Euro/USD) and oil prices are still positive and strong. E.g. the linear correlation between the price of oil and EURO /USD was 0.53 during recent weeks. If the U.S dollar will further depreciate against the EURO and AUD, it may positively affect oil prices.

Oil Prices Outlook and Analysis

Despite the recent rally of prices of oil during last week, oil prices might resume their downward trend during this week. There might be a correction at the beginning of the week and oil prices, but I think the general direction will continue to be down. Moreover, the difference between Brent and WTI oil may further shrink to the range of $18-$21 during the week. Oil stockpiles increased again last week, which could suggest oil prices in the U.S will decline this week. The upcoming reports on durable goods could affect the direction of oil from the projected demand side; therefore if such reports will show growth, they could positively affect the prices of oil. Finally, if major currencies including EURO and Aussie dollar will continue to appreciate against the U.S. dollar, they may also positively affect oil prices.The bottom line, I guess the prices of oil will slightly decline on a weekly scale even thought they could start the week rising.

I speculate during the week, WTI oil will trade between $83 and $88 and Brent between $105 and $110.

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