During last week, crude oil prices (WTI & Brent) changed pace and tumbled down: WTI decreased by 2.85%; Brent oil, by 3.78%. As a result, the gap between the Brent oil and WTI shrunk; the difference between Brent and WTI ranged between $20 and $22. Based on the recent EIA report, oil stockpiles fell by 1.2 MB. Will oil continue to fall next week? During the forthcoming week, several publications may affect the oil market. These items include: U.S GDP for Q4, U.S core durable goods, U.S and China’s manufacturing PMI and EIA oil weekly update.
Here is a weekly projection and analysis for the crude oil market for February 25th to March 1st:
Oil Prices – February
During the previous week, crude oil price (WTI) fell by 2.85% and reached by Friday $93.13/b; Brent oil also tumbled down by 3.78% to $114.1/b; during February, WTI oil declined by 4.47%; Brent oil, by 1.25%.
In the chart below are the changes in WTI and Brent oil prices during January-February (rates are normalized to December 30th). As seen below, the prices of oil changed course and declined in recent days.
Premium of Brent over WTI – February
The gap between Brent oil and WTI spot oil has contracted during last week as it ranged between $19 and $22 per barrel. During February the premium rose by 16.11%.
Oil Stockpiles – Declined by 1.2 Mb
The oil stockpiles declined by 1.2 MB and reached 1,790.6 million barrels. The linear correlation between the shifts in stockpiles remained mid-strong and negative: this correlation suggests that the price of oil, assuming all things equal, will moderately rise next week. The next report will be published on Wednesday, February 27th and will refer to the week ending on February 22nd.
Main Oil Related News Items for the upcoming week
Wednesday – U.S Core Durable Goods: This report may indirectly indicate the developments in U.S. demand for commodities such as oil. As of December 2012, new orders of manufactured durable goods increased to $230.7 billion;
Thursday – Second U.S GDP 4Q 2012 Estimate: In the previous estimate the U.S GDP contracted by 0.1% in the fourth quarter; in the third quarter the GDP expanded by 2.7%; in the 2Q2012 the GDP growth rate reached 1.7% (annual rate). This presents a drop in the growth rate for the US’s GDP;
Thursday – Philly Fed Manufacturing Index: This survey provides an estimate for the progress of the US manufacturing conditions. In the previous January survey, the growth rate fell from +8.1 in December to -5.8 in January
Thursday – China Manufacturing PMI: According the recent report regarding January 2013 the Manufacturing PMI inched down to 50.4; this means that China’s manufacturing sectors is expanding at a slightly slower pace;
Friday – U.S. Manufacturing PMI: This update will refer to the monthly developments in the national manufacturing sector for February 2013. During January 2013 the index rose to 53.3%, which means the manufacturing is growing;
Foreign Exchange and Oil Prices Relation – February
The EURO/USD also declined last week by 1.24%. The AUD/USD on the other hand inched up by 0.15% during last week. The correlations among these currencies pairs (Euro/USD) and oil prices remained strong and robust. E.g. the linear correlation between the price of oil and EURO /USD was 0.66 during January- February. If the U.S dollar will continue to appreciate against the “risk currencies”, it may adversely affect oil prices.
Oil Prices Outlook and Analysis
Following the sharp fall in the price of crude oil last week, oil prices might change course and bounce back during next week. The difference between Brent and WTI oil ranged between $20 and $22 range and might continue to move in this ballpark in the coming days. Oil stockpiles declined again last week, which could pressure up oil prices in the U.S this week. The upcoming reports on U.S core durable goods, GDP, U.S and China’s manufacturing PMI could affect the path of oil from the projected demand side; if these reports will show growth in economic activities in these countries, they could help rally oil prices. Finally, if major currencies such as the EURO will continue to depreciate against the U.S. dollar, they may adversely affect oil prices. The bottom line, I guess the prices of oil will slightly rise on a weekly scale.
My guess is that WTI oil will trade between $92 and $97 and Brent between $112 and $118 during the week.
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