Oil price (WTI and Brent) rose again during last week. WTI oil rose by 2.5%; Brent oil, by 3%. As a result, the gap of Brent oil over WTI widen: The premium ranged between $8.59and $9.69. Last week, the EIA’s weekly update showed another decline in oil’s stockpiles of 5.3 million barrels. Will oil continue to rise? This week, several reports may affect oil prices. These items include: U.S retail sales, industrial production, China’s new loans, OPEC and IEA monthly updates, and EIA oil weekly report.
Here is a weekly forecast for the oil market for February 10th to 14th:
Oil Prices – February Overview
During last week, crude oil price (WTI) increased by 2.5% and reached by Friday $99.88/b; moreover, Brent oil rose by 3% to $109.57/b;
In the chart below are the daily changes in WTI and Brent oil prices during the past several months (prices are normalized to January 31st, 2013). As you can see below, Brent and WTI oil prices rallied in recent weeks.
The gap between Brent and WTI oil slightly rose last week as it ranged between $8.59 and $9.69 per barrel. During the week, the premium rose by $0.78 per barrel.
The oil stockpiles fell again by 5.3 MB and reached 1,729.6 million barrels. The linear correlation between the developments in stockpiles has remained stable at -0.201: this correlation suggests that oil price, assuming all things equal, may continue to rise next week. But in order to better understand the fundamentals let’s analyze the developments in supply and demand:
Supply: Oil imports tumbled down by 3.5% last week. Further, oil production inched down by 0.3%; the total supply decreased by 1.9%;
Demand: Refinery inputs declined by 1.7% last week. In total, the demand was still lower than the supply, but the gap between supply and demand contracted. This current gap may curb down oil prices from further rising as the U.S oil market is still looser than it was back in a few weeks back.
The chart below shows the changes in the gap between supply and demand and the price of oil.
The next weekly report will be released on Wednesday, February 12th and will refer to the week ending on February 7th.
OPEC Monthly Update
The OPEC report will present the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the shifts in the production of OPEC countries during January 2014; this news may affect oil prices.
The next report will be published on Wednesday, February 12th.
IEA Monthly Update
This upcoming monthly report will present an updated (for January) forecast and analysis for the global crude oil and natural gas market for 2013and 2014.
The next report will be published on Thursday, February 13th.
Oil Related News for the Week
Here are several news items that could influence oil investors:
Monday – China’s Trade Balance: According to the recent monthly report, China’s trade balance fell to a $25.6 billion surplus; if the surplus further falls, it could indicate China’s economy isn’t improving and thus may negatively affect oil prices;
Thursday –U.S. Retail Sales Report: This monthly update refers to January; in the last report regarding December, retail sales slightly rose by 0.2% (month-over-month); core retail sales rose by 0.7%; this report also shows the changes in U.S’s gasoline retail sales, which could suggest the developments in demand for gasoline;
Friday –U.S Industrial Production: This report will show the monthly shifts in the U.S industrial production during January; as of December, the production inched up by 0.3%; this report may affect the US dollar;
Oil Forecast and Breakdown
From the supply, the sharp decline imports and modest drop in production resulted in a sharp drop in oil supply. From the demand, refinery inputs sharply declined as well. Further, the storage dropped again. In total, while the supply was still higher than demand, the gap between the two has contracted. This could suggest the oil market has tightened. Looking forward, the upcoming reports regarding U.S and China could offer some additional insight regarding the progress in the demand for oil. The IEA and OPEC reports could offer info about the changes in production and updated forecasts for supply and demand. The gap between Brent and WTI ranged between $8 and $9. The tighter oil market in the U.S may narrow the gap between WTI and Brent oil. Moreover, if the US dollar continues to weaken, this could pull up oil prices.
The bottom line, on a weekly scale, I guess oil price may continue to slowly rise and the gap between WTI and Brent to slightly contact.
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