During last week, crude oil price continued their upward trend: WTI oil rose by 1.97%; Brent oil, by 3.07%. As a result, the gap between the Brent oil and WTI widened; the difference between Brent and WTI ranged between $16 and $19. According to the latest EIA report, oil stockpiles changed direction and increased by 2.2 MB. Will oil continue to trade up next week? During the upcoming week, several publications may affect the oil market. These items include: U.S trade balance, Germany factory orders, China’s trade balance and EIA oil weekly update.
Here is a weekly projection and analysis for the crude oil market for February 4th to February 8th:
Oil Prices – February
During last week, crude oil price (WTI) increased by 1.97% and reached by Friday $97.77/b; Brent oil also rose by 3.07% to $116.76/b; during January, WTI oil rose by 6.18%; Brent oil, by 4%.
In the chart below are the changes in WTI and Brent oil prices during the month (rates are normalized to December 30th). As seen below, the prices of oil (WTI) have risen in recent weeks.
The difference between Brent oil and WTI spot oil has widen during the previous week as it ranged between $16 and $19 per barrel. During January the premium declined by 6.38%.
The oil stockpiles changed direction and increased by 2.2 MB and reached 1,798.7 million barrels. The linear correlation between the shifts in stockpiles is still negative: this correlation suggests that the price of oil, assuming all things equal, will fall next week. The upcoming report will be published on Wednesday, February 6th and will refer to the week ending on February 2nd.
Main Oil Related News Items for the upcoming week
Wednesday – German Factory Orders: This report will refer to the changes in the factory orders of Germany for December; in the previous report the German factory orders fell by 1.8% (M-o-M);
Thursday –China’s Trade Balance: as of the latest monthly update, China’s trade balance rose to a $31.6 billion surplus; if the surplus will further rise, it could indicate that China’s economic growth is progressing and thus may positively affect prices of commodities.
Friday –American Trade Balance: This monthly report for December will show the recent developments in imports and exports of goods and services to and from the U.S, including commodities such as crude oil; according to the previous American trade balance report regarding November the goods and services deficit increased during the month to $48.7 billion;
Foreign Exchange and Oil Prices Relation – February
The EURO/USD increased last week by 1.31%. Conversely, the AUD/USD slipped by 0.16% during last week. This mixed trend may have also affected the volatility 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 0.40 during January- February. If the U.S dollar will continue to and depreciate against the “risk currencies”, it may pressure up oil prices.
Oil Prices Outlook and Analysis
Following the ongoing rise in the prices of crude oil in recent weeks, oil prices might continue to rally during the upcoming week. The positive reports regarding the growth in China (PMI) and the mostly positive reports (labor, housing, PMI) regarding the progress of U.S economy may have pressured up oil prices. The rise in the U.S stock market is another factor that suggests the demand for oil will further augment in the weeks to come. The rise in the difference between Brent and WTI oil may further rise on account of the rise in demand in Europe, partly on account of the cold weather. The price gap might remain in the range between $16 and $18 in the coming days. Oil stockpiles rose last week, which could pull down oil prices in the U.S this week. The upcoming reports on U.S and China’s trade balance reports 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 ECB will cut its cash rate, this could affect commodities prices via the changes in the forex markets. Finally, if major currencies including EURO will continue to appreciate against the U.S. dollar, this may pull up oil prices. The bottom line, I guess the prices of oil will further rise on a weekly scale.
I guess during the week, WTI oil will trade between $97 and $102 and Brent between $114 and $118.
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