Oil price (WTI and Brent) didn’t do much during last week. WTI oil slightly rose by 0.42%; Brent oil slipped by 0.77%. As a result, the gap of Brent oil over WTI narrowed: The premium ranged between $8.38 and $8.74. Last week, the EIA’s weekly report showed a rise in oil’s stockpiles of 2 million barrels. Will oil change direction and fall? This week, several reports may affect oil prices. These items include: U.S Philiy Fed index, China’s manufacturing PMI, and EIA oil weekly report.
Here is a weekly forecast for the oil market for February 17th to 21st:
Oil Prices – February Overview
During last week, crude oil price (WTI) slightly rose by 0.42% and reached by Friday $100.3/b; on the other hand, Brent oil slipped by 0.77% to $108.73/b;
In the chart below are the daily shifts 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 slightly rose in recent weeks.
The gap between Brent and WTI oil slightly narrowed last week as it ranged between $8.38 and $8.74 per barrel. During the week, the premium fell by $1.28 per barrel.
The oil stockpiles rose by 2 MB and reached 1,731.6 million barrels. The linear correlation between the developments in stockpiles has remained stable at -0.202: this correlation suggests that oil price, assuming all things equal, may slightly decline next week. But in order to better understand the fundamentals let’s analyze the developments in supply and demand:
Supply: Oil imports sharply rose by 3.5% last week. Conversely, oil production inched down by 0.1%; the total supply increased by 1.6%;
Demand: Refinery inputs declined by 0.8% last week. In total, the demand was lower than the supply, and the gap between supply and demand widened. This current gap may pull down oil prices as the U.S oil market is looser than it was last week.
The chart below presents the changes in the gap between supply and demand and the price of oil.
The next weekly report will be released on Wednesday, February 19th and will refer to the week ending on February 14th.
OPEC’s Oil production rises
The OPEC report came out last week and showed a modest gain in OPEC’s oil production in the past month: OPEC’s production during January reached 29.711 million bbl/d – a 28 thousand bbl/d gain. This modest rise in production is mostly due to Libya’s sharp rise in production from 240 thousand bbl/d to 510 thousand bbl/d – a 270 thousand bbl/d. Libya’s current output is still at third of its capacity. This rise was offset by the drop in production in Saudi Arabia and Angola. If OPEC’s oil production further rises, this could continue to pressure down oil prices mainly Brent oil.
IEA’s Update as of February 2014
According to the update report, OECD’s industry oil inventories plummeted by 56.8 mb during December. Global oil supplies edged down by 290 tb /d month-over-month to 92.1 mb/d during January.
Oil Related News for the Week
Here are several news items that could influence oil investors:
Wednesday – China Manufacturing PMI (flash): Last month’s report regarding January 2014 the Manufacturing PMI inched down to 49.6 – i.e. China’s manufacturing sectors is contracting for the first time since July 2013. If in the upcoming update the PMI index continues to drop, it could signal the progress in China’s economy is slowing down. This may also affect commodities prices;
Thursday – Philly Fed Manufacturing Index: In the last survey regarding February, the growth rate slightly rose from +7 in December to +9.4 in January (the recent Philly Fed review);
Oil Outlook and Breakdown
From the supply, the sharp rise imports and modest decline in production resulted in an increase in oil supply. From the demand, refinery inputs declined again. Further, the storage rose. In total, the supply is still higher than demand and the gap between the two has widened. This could suggest the oil market has loosened. Looking forward, the upcoming reports regarding U.S and China could offer some additional insight regarding the progress in the demand for oil. The OPEC report showed a modest rise in production and perhaps another rise in production from Libya could increase OPEC’s production in the coming months. The gap between Brent and WTI ranged between $8 and $9. The looser oil market in the U.S may slightly widen the gap between WTI and Brent oil. Conversely, if the US dollar continues to weaken, this could pressure up oil prices.
The bottom line, on a weekly scale, I guess oil price may change course and start to slowly fall and the gap between WTI and Brent to slightly widen.
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