During the pervious week, crude oil price (WTI) changed direction and fell while Brent oil continued to trade up: WTI oil fell by 2.1%; Brent oil rose by 1.83%. As a result, the gap between the Brent oil and WTI widened; the difference between Brent and WTI ranged between $19 and $23. According to the recent EIA report, oil stockpiles moderately increased by 0.4 MB. Will oil bounce back next week? During the forthcoming week, several publications may affect the oil market. These items include: OPEC monthly update, IEA report, U.S retail sales, EU GDP for Q4 and EIA oil weekly update.
Here is a weekly projection and analysis for the crude oil market for February 11th to February 15th:
Oil Prices – February
During last week, crude oil price (WTI) declined by 2.1% and reached by Friday $95.72/b; Brent oil, on the other hand, rose again by 1.83% to $118.9/b; during February, WTI oil declined by 1.82%; Brent oil rose by 2.9%.
In the chart below are the shifts in WTI and Brent oil prices during January-February (rates are normalized to December 30th). As seen below, the prices of oil (Brent) have risen in recent weeks.
Premium of Brent over WTI – February
The difference between Brent oil and WTI spot oil has further widened during last week as it ranged between $19 and $23 per barrel. During February the premium increased by 28.32%.
Oil Stockpiles – Slightly Increased by 0.4 Mb
The oil stockpiles increased by 0.4 MB and reached 1,799.1 million barrels. The linear correlation between the changes in stockpiles is still negative: this correlation suggests that the price of oil, assuming all things equal, will decline next week. The upcoming report will be published on Wednesday, February 13th and will refer to the week ending on February 9th.
OPEC Monthly Report
The OPEC report will present the main changes in crude oil and natural gas’s supply and demand worldwide; the report will also pertain to the shifts in the production of OPEC countries during January 2012; this news may affect oil prices (See here a summary of the previous report).
The next report will be published on Tuesday, February 12th.
IEA Monthly Report
This upcoming monthly report will show an updated (for January) forecast and analysis for the global crude oil and natural gas markets for 2013 and 2014.
The next report will be published on Wednesday, February 13th.
Main Oil Related News Items for the upcoming week
Wednesday –U.S. Retail Sales Report: in the recent report regarding December, the retail sales increased by 0.5% from the previous month; gasoline stations sales declined by 1.6% in December compared to November; this report could signal the shifts in U.S’s gasoline demand and thus may affect crude oil prices;
Thursday – Euro GDP for Q4 2012: according to the previous quarterly update the annual GDP contracted by 0.1% as of the third quarter. This flash estimate will refer to the fourth quarter of 2012. If the EU economy will continue to shrink, this may also weaken the euro;
Foreign Exchange and Oil Prices Relation – February
The EURO/USD declined last week by 2.02%. Moreover, the AUD/USD slipped by 0.85% during the previous week. This downward trend may have also affected the direction of oil prices during the week. The correlations among these currencies pairs (Euro/USD) and oil prices are still strong and robust. E.g. the linear correlation between the price of oil and EURO /USD was 0.62 during January- February. If the U.S dollar will change course and appreciate against the “risk currencies”, it may pressure up oil prices.
Oil Prices Outlook and Analysis
Following the decline in the price of crude oil last week, oil prices might change course and rally during next week. The positive reports regarding the growth in China (PMI) may contribute to rise in oil prices. The sharp fall in the Euro may have pulled down oil prices. The rise in the difference between Brent and WTI oil may remain around the $20+ range on account of the rise in demand in Europe, partly due to the cold weather. Oil stockpiles slightly increased last week, which could pull down oil prices in the U.S this week. The upcoming reports on U.S retail sales and EU GDP could affect the direction of oil from the projected demand side; therefore if such reports will show a rise in economic activities in these countries, they could positively affect oil prices. If the OPEC report will show a drop in OPEC production this may also pull up oil prices. Finally, if major currencies such as the EURO will change direction and appreciate against the U.S. dollar, they may pressure up oil prices. The bottom line, I guess the prices of oil will rally on a weekly scale.
I guess during the week, WTI oil will trade between $97 and $102 and Brent between $114 and $118.
For further reading:
- Weekly Outlook of Financial Markets for February 11-15
- Will Oil Continue to Rise?
- Will Oil Come Down Anytime Soon?
- Will Exxon Continue To Trade Up?