Oil Weekly Outlook For December 24-28

During last week, crude oil prices rose again despite the downward trend of certain “risk currencies” such as Canadian dollar and Aussie dollar against the USD. Based on the latest EIA report, oil stockpiles fell by 1.9MB. During the previous week, WTI oil rose by 2.23%; Brent oil, by 0.43%. As a result, the gap between the Brent oil and WTI slightly narrowed; the difference between Brent and WTI ranged between $20 and $21. This will be short on account of the holidays. This could result in low volume of trading, which could augment the price volatility during the week. Will oil continue to rise next week? During the upcoming week, several publications may affect the oil market. These items include: U.S new and pending home sales, consumer confidence report, BOJ minutes of monetary policy meeting and EIA oil weekly update.

Here is a weekly projection and analysis for the crude oil market for December 24th to 28th:

Oil Prices – December

During last week, crude oil price (WTI) increased by 2.23% and reached by Friday $88.69/b; Brent oil also rose by 0.43% to $108.97/b; during December, WTI oil slipped by 0.28%; Brent oil, by 2.03%.

In the chart below are the changes in WTI and Brent oil prices during recent weeks (rates are normalized to November 30th). As seen, the prices of oil have rallied in recent weeks.

oil forecast Brent and WTI spot rates  2012  December 24-28

Premium of Brent over WTI – December

The difference between Brent oil and WTI spot oil slightly shrunk during last week at the range between $20 and $21 per barrel. During the month the premium fell by 9%.

Difference between Brent and WTI December 24-28 2012

Oil Stockpiles – Declined by 1.9 Mb

The oil stockpiles changed direction and declined by 1.9 MB and reached 1,791.4 million barrels. The linear correlation between the changes in stockpiles tends to be negative: this correlation suggests that the price of oil, assuming all things equal, will slightly rise next week. The upcoming report will come out on Friday, December 28th and will refer to the week ending on December 21st.

Main Oil Related News Items for the upcoming week

Tuesday – Bank of Japan –Monetary Policy Minutes: Bank of Japan will publish the minutes of the recent monetary policy meeting and rate decision. In the recent meeting, BOJ decided to expand its asset purchase program by 10 trillion yen ($120 billion). The minutes could offer some insight behind the recent decision and could affect the Yen, other currencies and commodities;

Thursday – U.S. New Home Sales: in the previous report (for October), the sales of new homes slipped to an annual rate of 368,000 – a 0.3% drop (month over month); this report may affect the strength of the USD;

Thursday – U.S Consumer Confidence: according to the recent monthly report, the consumer confidence index increased in October (M-o-M). The current expectations are that the December index may further rise; this report might affect the oil markets;

Foreign Exchange and Oil Prices Relation – December

The EURO/USD edged up last week by 0.19%. Conversely, the AUD/USD fell by 1.61% during last week. This mixed trend may have affected oil prices to change direction by the end of the week and fall. The correlations among these currencies pairs (Euro/USD) and oil prices are still positive and robust. E.g. the linear correlation between the price of oil and EURO /USD was 0.64 during recent weeks. If the U.S dollar will continue to depreciate against the EURO, it may positively affect oil prices.

Oil Prices Outlook and Analysis

Following the recent rally of prices of oil during last week, oil prices might continue to slightly increase on the last week of 2012. Keep in mind the low volume trading in the markets could lead to an increase in price volatility. The difference between Brent and WTI oil may further narrow to the range of $19-$20 during the week. Oil stockpiles declined again last week, which could suggest oil prices in the U.S will increase again this week. The upcoming reports on home sales and consumer confidence could affect the direction of oil from the projected demand side; therefore if such reports will show progress, they could positively affect the prices of oil. Finally, if major currencies including EURO will continue to appreciate against the U.S. dollar, this may positively affect oil prices.The bottom line, I guess the prices of oil will slightly rise on a weekly scale even thought they could change direction on a daily basis due to low volume trading.

I speculate during the week, WTI oil will trade between $86 and $92 and Brent between $107 and $112.

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