The prices of oil (WTI and Brent) bounced back during last week: WTI rose by 3.06%; Brent oil also increased by 1.24%. As a result, the difference between the Brent oil and WTI slightly contacted; the gap between Brent and WTI ranged between $5 and $6. According to the recent EIA weekly update, oil stockpiles rose by 9.3Mb. Further, refinery inputs and imports increased while production inched down during last week. Will oil resume its downward trend next week? In the forthcoming week, several publications and decisions may affect the oil market. These items include: U.S employment report, Canada’s employment report, U.S and China’s manufacturing PMI, and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for July 1st to July 5th:
Oil Prices – July
During last week, crude oil price (WTI) rose by 3.06% and reached by Friday $96.56/b; further, Brent oil increased by 1.24% to $102.16/b; during last month, WTI oil rose by 4.99%; Brent oil, by 1.76%.
In the chart below are the changes in WTI and Brent oil rate in the past several months (prices are normalized to January 31st). As seen in the chart herein, the oil prices have bounced back in recent weeks.
Premium of Brent over WTI – July
The gap between Brent oil and WTI spot oil slightly contracted again as it ranged between $5 and $6 per barrel. During June, the premium sharply fell by 33.49%.
Oil Stockpiles – Rose Again by 9.3Mb
The oil stockpiles rose again by 9.3 MB and reached 1,839.9 million barrels. The linear correlation between the shifts in stockpiles has slightly weakened to -0.173: this correlation suggests that oil price, assuming all things equal, will decline next week.
The chart below presents the changed in price of oil and stockpiles in recent years.
Oil imports to the U.S rose by 1.5% last week. The weekly shifts in oil imports have a mid-strong negative correlation (-0.298) that suggests oil prices may fall next week. Refinery inputs also rose last week while oil production inched down. In other words, the rise in imports and refinery inputs might suggest the oil market has moderately loosened in the U.S.
The next weekly update will come out on Wednesday, July 3rd and will refer to the week ending on June 28th.
Main Oil Related News Items for the upcoming week
Monday – China Manufacturing PMI: Back in May 2013 the Manufacturing PMI inched up to 50.8 – i.e. China’s manufacturing sectors is expanding at a slightly faster pace; the recent flash PMI report was below the 50 point market. If in the upcoming report the PMI will also decline below the 50 point mark, it could signal a drop in China’s economic progress. If the index will fall, this may also adversely affect oil prices;
Monday – U.S. Manufacturing PMI:. During May, the index dropped to 49%; this means the manufacturing is contracting; this index may affect crude oil markets.
Friday – U.S. Non-Farm Payroll Report: in the latest update for May 2013, the labor market rose again: the number of non-farm payroll employment rose by 175k; the U.S unemployment rate inched up to 7.6%; if in the upcoming report the employment will rise again by over 150 thousand (in additional jobs), this may pull up the prices of oil;
Foreign Exchange and Oil Prices Correlations – June
During the previous week, the EURO/USD declined by 0.85%; moreover, the AUD/USD also fell by 0.88%. The correlations among these currencies pairs (AUD /USD) and oil prices contracted. E.g. the linear correlation between the price of oil and AUD /USD was 0.54 during recent weeks. Nonetheless, if the U.S dollar will continue to appreciate against “risk currencies”, this could pressure down oil prices.
Oil Prices Outlook and Analysis
From the supply side, the rise in refinery inputs and imports in the U.S may pull back oil prices. Moreover, the rise in storage buildup is another indication for a rise in supply or a decline in demand, which could also suggest that the U.S. oil market has loosened up. The slow recovery of the U.S compared to Europe will plausibly keep contracting the gap between WTI and Brent. From the demand side, the upcoming reports regarding China and U.S’s manufacturing PMI might provide an update to the expected changes from demand sides; if the reports will show growth (higher than anticipated), they could pull up the prices of oil. The recovery of the U.S economy could also pressure up the prices of oil. The commencement of the driving season in the U.S is likely to pressure up oil prices. On a sentimental level, the recent rally of oil prices last week might persist this week. Finally, if major currencies such as the EURO and Aussie will continue to decline against the U.S. dollar, they may adversely affect oil prices.
The bottom line, oil price might continue to trade up.
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