Oil Weekly Outlook For January 14-18

During last week, crude oil prices remained nearly unchanged. According to the recent EIA report, oil stockpiles rose by 10.9MB. During last week, WTI oil rose by 0.5%; Brent oil declined by 0.6%. As a result, the gap between the Brent oil and WTI contracted; the difference between Brent and WTI ranged between $17 and $19. Will oil change direction and fall next week? During the upcoming week, several publications may affect the oil market. These items include: U.S Philly Fed survey, China’s GDP for Q4 2012, OPEC monthly report, IEA outlook and EIA oil weekly update.

Here is a weekly projection and analysis for the crude oil market for January 14th to 18th:

Oil Prices – January

During last week, crude oil price (WTI) rose by 0.5% and reached by Friday $93.56/b; Brent oil slipped by 0.6% to $110.64/b; during January, WTI oil rose by 1.9%; Brent oil decreased by 0.42%.

In the chart below are the developments in WTI and Brent oil prices during the month (rates are normalized to December 30th). As seen, the prices of oil have had a moderate upward trend in recent weeks.

oil forecast Brent and WTI spot rates  January 14-18 2013

Premium of Brent over WTI – January

The difference between Brent oil and WTI spot oil contracted again during last week at the range between $17 and $19 per barrel. During the month the premium fell by 11.5%.

Difference between Brent and WTI January 14-18  2013

Oil Stockpiles – Rose by 10.9 Mb

The oil stockpiles changed direction and rose by 10.9 MB and reached 1,795.4 million barrels. The linear correlation between the changes in stockpiles tends to be negative: this correlation implies that the price of oil, assuming all things equal, will slightly fall next week. The upcoming report will come out on Wednesday, January 16th and will refer to the week ending on January 11th.

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 refer to the developments in the production of OPEC countries during December 2012; this news may affect oil prices (See here a summary of the previous August report).

The next report will be published on Wednesday, January 16th.

IEA Monthly Report

This upcoming monthly report will present an updated (for December) outlook and analysis for the global crude oil and natural gas market for 2013 and 2014.

The next report will come out on Friday, January 18th.

Main Oil Related News Items for the upcoming week

Thursday – Philly Fed Manufacturing Index: In the December survey, the growth rate rose from -10.7 in November to +8.1 in December. If the index will continue to rise it may positively affect commodities prices (the previous Philly Fed review);

Thursday–China Fourth Quarter GDP 2012: during the third quarter of 2012, China grew by only 7.4% in annual terms; the current expectations are that the Q4 2012 grew in annul terms by a higher pace than in the previous quarter; if the growth rate will be higher than in the previous quarter it might positively affect commodities;

Foreign Exchange and Oil Prices Relation – January

The EURO/USD rose last week by 2.1%. Further, the AUD/USD also rose by 0.52% during last week. This upward trend may have affected oil prices to change direction by the end of the week and decline. The correlations among these currencies pairs (Euro/USD) and oil prices are still positive and robust. E.g. the linear correlation between the price of oil and EURO /USD was 0.34 during December and January. If the U.S dollar will change direction and appreciate against the “risk currencies”, it may pull down oil prices.

Oil Prices Outlook and Analysis

Following the recent modest gain in the prices of oil during last, oil prices might shift pace and decline during next week. The difference between Brent and WTI oil may further narrow to the range of $16-$18 during the week. Oil stockpiles rose last week, which could suggest oil prices in the U.S will decrease this week. The upcoming reports on U.S Philly fed and China’s GDP could affect the path of oil from the projected demand side; therefore if such reports will show growth, they could positively affect oil rates. Finally, if major currencies including EURO will change direction and depreciate against the U.S. dollar, this may pull down oil prices.The bottom line, I guess the prices of oil will slightly decrease on a weekly scale.

I guess during the week, WTI oil will trade between $90 and $95 and Brent between $108 and $112.

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