Oil prices (WTI and Brent) rose again during last week: WTI rose by 2.64%; Brent oil also increased by 1.01%. As a result, the premium of Brent oil over WTI sharply fell; the premium ranged between $2 and $4. According to latest EIA weekly update, oil stockpiles fell by 7.2Mb. In the U.S, refinery inputs production and imports rose while imports slipped during last week. The IEA and OPEC reports showed a drop in OPEC’s production. The situation in Egypt is keeping oil prices high. Will oil continue to rise next week? This week, several reports may affect the oil market. These items include: China’s GDP, U.S retail sales, Philly Fed, and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for July 15th to July 19th:
Oil Prices – July
During last week, crude oil price (WTI) rose by 2.64% and reached by Friday $105.95/b; further, Brent oil also increased by 1.01% to $108.81/b;
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 have traded up in the past several of weeks.
The gap between Brent oil and WTI spot oil contracted again as it ranged between $2 and $4 per barrel. During July, the premium tumbled down by 48.93%.
The oil stockpiles fell again by 7.2 MB and reached 1,818.1 million barrels. The linear correlation between the shifts in stockpiles has slightly strengthened to -0.193: this relation suggests that oil price, assuming all things equal, will further rally next week.
Oil imports to the U.S decreased by 1% last week. The weekly shifts in oil imports have a mid-strong negative correlation (-0.279) that implies oil prices may rise next week. Oil production and refinery inputs increased last week. In other words, the rise in production and refinery inputs might loosen the U.S oil market and thus curb the recent rise of oil prices.
The next weekly report will come out on Wednesday, July 17th and will pertain to the week ending on July 12th.
OPEC Monthly Report
According to the latest OPEC Report, OPEC’s oil production fell by 309 thousand bbl/d to reach 30,379 thousand in June. This news suggests the oil supply has declined during last month, which could have tightened the oil market in recent weeks. If this trend will continue, it could further pressure up oil prices.
IEA Monthly Update
According the recent monthly update, the global oil supply fell in June by 300 thousand bbl/d due to low OPEC output. The global demand is expected to grow by 930 thousand bbl/d in 2013 – a slightly higher number due to colder than expected weather. OECD’s oil demand rose in the second quarter of 2013 due to unseasonable cold weather. OECD inventories rose by a lower than expected rate during May.
These figures suggest the supply didn’t expand while the demand is growing. If these trend will persist this could pull up the price of oil.
Egypt Riots and Oil
The ongoing riots and upheaval in Egypt could be among the factors contributing to the rise of oil price on account of the concern regarding the potential blockage of the Suez Canal, in which nearly 3.8 million barrels per day transport through it. Recall, in 2011 Arab spring that also erupted in Egypt, the Suez Canal remained open. Therefore, the current developments in Egypt are less likely to affect the shipment of oil via the Suez Canal.
Oil Related News for the Week
Monday –China First Quarter GDP 2013: during the first quarter of 2013, China grew by only 7.7% in annual terms. The current expectations are that the second quarter of 2013 grew in annul terms by a slower pace than in the last quarter; if the growth rate will continue to dwindle, this may adversely affect oil prices;
Monday –U.S. Retail Sales Report: in the previous report, retail sales slightly rose by 0.3% from the last month; gasoline stations sales slipped by 0.2% in May compared to April 2013; this report could signal the developments in U.S’s gasoline demand and thus may affect oil prices in the U.S;
Thursday – Philly Fed Manufacturing Index: In the last survey regarding June, the growth rate bounced back from -5.2 in May to +12.5 in June. If the index will continue to rally, it may positively affect oil prices (the previous Philly Fed review);
Oil Prices Outlook and Analysis
From the supply side, the decline in imports could slowly pull down oil price. On the other hand, the rise in production and refinery inputs may pressure down oil prices. The latest OPEC and IEA monthly updates showed a drop in OPEC’s production, which coincided with the recent rise in oil prices. The recent decline in U.S storage is another indication for a decrease in supply or an increase in demand, which could also suggest that the U.S. oil market has tightening. From the demand side, the IEA monthly update showed a rise in demand in OECD countries. Moreover, the ongoing recovery of the U.S economy may positively affect oil prices. The situation in Egypt is likely to keep affecting the high volatility of oil prices. If the situation there will calm down, oil prices might have a correction and pull down. Finally, the rising demand in U.S compared to Europe and the progress of the U.S supply may keep shirking the premium of Brent over WTI.
The bottom line, oil price might continue to pull up even though it may start the week on a negative note (especially if China’s GDP figures will disappoint).
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