Oil price (WTI) slightly rose again during last week, while Brent oil declined. WTI oil rose by 0.88%; Brent oil slipped by 1.37%. As a result, the gap of Brent oil over WTI narrowed: The premium ranged between $8.91 and $10.97. Last week, the EIA’s weekly update showed a drop in oil’s stockpiles of 3.8 million barrels. Will oil change direction? This week, several reports may affect oil prices. These items include: U.S NF payroll report, U.S manufacturing PMI, U.S factory orders, and EIA oil weekly report.
Here is a weekly forecast for the oil market for February 3rd to 7th:
Oil Prices – February Overview
During last week, crude oil price (WTI) rose by 0.9% and reached by Friday $97.49/b; conversely, Brent oil decreased by 1.37% to $106.40/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 seen below, Brent and WTI oil prices didn’t do much in recent weeks.
The difference between Brent and WTI oil slipped last week as it ranged between $8.91 and $10.97 per barrel. During the week, the premium decreased by $2.33 per barrel.
The oil stockpiles declined again by 3.8 MB and reached 1,734.9 million barrels. The linear correlation between the developments in stockpiles has remained stable at -0.199: this correlation implies that oil price, assuming all things equal, may continue to advance next week. But in order to better understand the fundamentals let’s analyze the developments in supply and demand:
Supply: Oil imports rose by 1.6% last week. Conversely, oil production inched down by 0.2%; the total supply increased by 0.8%;
Demand: Refinery inputs declined by 1.3% last week. In total, the demand was lower than the supply – the first time since late November 2013. In other words, due to drop in demand and rise in supply, the gap between supply and demand changed course. This current gap may drag down oil prices as the U.S oil market is much 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 5th and will refer to the week ending on January 31st.
Oil Related News for the Week
Here are several news items that could influence oil investors:
Monday – U.S Manufacturing PMI: This report will refer to January 2014. In December, the index slipped to 57%; this means the manufacturing is growing at a slower pace; this index may affect crude oil markets;
Tuesday – U.S Factory Orders: This report will pertain to the developments in U.S. factory orders of manufactured durable goods during January; in the latest report factory orders increased by 1.8%; this report will offer some insight regarding the progress of the U.S economy;
Friday – U.S. Non-Farm Payroll Report: In the previous employment report regarding December 2013, the labor market modestly improved: The number of non-farm payroll employment increased by 74k – much lower than the number many had expected; the U.S unemployment rate dropped to 6.7%;
Oil Outlook and Breakdown
From the supply, the modest decline production was offset by the rise in imports; the result was a rise in oil supply. From the demand, refinery inputs declined again. Nonetheless, the storage fell again. Further, the difference between supply and demand has shifted so that the supply is higher than the demand; this could suggest the oil market has loosened. Looking forward, the upcoming reports regarding U.S could offer some additional insight regarding the progress in the demand for oil. The gap between Brent and WTI ranged between $9 and $10. The looser oil market in the U.S may widen the gap between WTI and Brent oil. Moreover, if the US dollar continues to strengthen, this could pull down oil prices.
The bottom line, on a weekly scale, I guess oil price may decline and the gap between WTI and Brent to slightly widen.
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