Crude Oil Prices – Weekly Outlook July 16-20

Crude oil prices changed direction and rose during most of last week. The recent OPEC report and IEA monthly update didn’t show a significant change from the previous reports. The disappointing GDP growth rate of China for Q2 2012 may have raised the speculation that China will stimulate the economy. This news may have contributed to the rise of energy commodities prices on Friday. During the week, WTI oil rose by 3.14%. Brent oil, even more than WTI, finished the week rising by 4.5%.

During the upcoming week there are several reports that may affect oil rates including the U.S retail sales report, testimony of Bernanke, CPI of U.S and Canada, Philly Fed index and EIA oil report.  

Here is a weekly outlook and analysis of the crude oil market for July 16th to July 20th:

Oil Prices –July

By Friday, July 13th crude oil price (WTI) rose by 1.18% and reached $87.10/b; Brent oil also increased by 2.16% to $102.62/b; during last week, WTI spot oil increased by 3.14% and Brent oil by 4.5%.

In the chart below are the changes in WTI and Brent oil prices during the week (prices are normalized to June 29th). It show how both oil prices have had an upward trend during last week.

oil forecast Brent and WTI spot rates  2012 16-20 JulyPremium of Brent over WTI – July

The gap between Brent oil and WTI spot oil rose again to $14-$15 per barrel range. During July the premium rose by 28.9%.

Difference between Brent and WTI  16-20 July 2012OPEC’s oil Production Slightly Fell in June

OPEC’s crude oil production declined to 31,363 thousand bbl/d in June compared with 31,469 thousand bbl/d in May. This means the total OPEC oil supply slightly declined by 105.9 thousand during last month. Libya’s oil production slightly rose again; Nigeria and Iraq also increased their respective oil production by small margins.  Saudi Arabia’s oil production nearly didn’t change. On the other hand Iran’s oil production declined again by 188.5 thousand bbl/d and as a result if fell below the 3,000 thousand mark.

OECD Oil Inventories Rose by 15.4 Mb in May – IEA Oil Report for June

According to the recent IEA oil report, the OECD industry oil inventories rose again by 15.4 million bbl to 2,672 million bbl in May 2012. Global oil demand projection is expected to rise by 0.8 mbbl/d to 89.9 mbbl/d during 2012. Non-OPEC countries’ oil production is expected to grow by only 0.4 mb/d during the year.

These two reports reflect the recent changes in inventories, production in OPEC and non-OPEC countries and present update estimates of the expected demand and supply for crude oil on a global level. Since there weren’t many changes in these reports they may have had only little effect on the oil markets.

Oil Stockpiles –Rose by 2.9Mb

U.S. crude oil stockpiles rose last week by 2.9 million bl. For the week ending on July 6th oil stockpiles reached 1,797 million barrels.

The upcoming report will be published on Wednesday, July 18th and will refer to the week ending on July 13th.

Main Oil Related News Items for the upcoming week

Monday –U.S. Retail Sales Report: in the recent report regarding May, the retail sales edged down by 0.2% from the previous month; gasoline stations sales decreased by 2.2% in May compared to April; this report could signal the changes in U.S’s gasoline demand and thus may affect crude oil prices;

Tuesday –U.S Core Consumer Price Index: According to the U.S Bureau of Labor statistics during May, the core CPI edged up by 0.2%(M-o-M) and the index increased over the last 12 months by 2.3%; the CPI declined last month by 0.3%;

Wednesday– Bernanke’s Testimony: This might be the main event of the week. Following the recent publication of the minutes of the FOMC meeting, if Bernanke will hint of another stimulus plan it could rally the commodities markets. The title of the speech is “Semiannual Monetary Policy Report to the Congress“;    

Thursday – Philly Fed Manufacturing Index: the survey measures the manufacturing conditions. In the previous June survey, the growth rate fell from -5.8 in May to -16.6 in June 2012. If this trend will continue this index may adversely affect not only U.S Dollar but also commodities rates (the recent Philly Fed review);

Friday – Canada’s Core CPI: According to the Canadian CPI report for May 2012, the CPI rose by 1.2% during the past 12 month up to May – this is a slightly lower rate than in April. This report might affect the Canadian dollar, which is also strongly linked with oil prices;

Forex and Crude Oil Prices –July

The EURO/USD exchange rate edged down last week by 0.33%; on the other hand, the AUD/USD slightly rose by 0.15%. There are still positive correlations among these foreign exchange rates (EURO/USD, AUD/USD) and crude oil rate. E.g. the linear correlation between the oil price and Euro/USD is 0.79 during June and July. If the U.S dollar will appreciate against the EURO and Aussie dollar, it may pressure down oil prices.

Oil Prices Outlook and Analysis

The Brent premium over WTI oil rose again during last week and may change direction if the concerns over the oil supply in Europe will ease (e.g. the strike in Norway ended).  If the upcoming U.S reports (retail sales, Philly Fed, CPI) will continue to show weakens it may adversely affect oil prices. On the other hand if Bernanke will hint in his testimony of another stimulus plan it could rally oil markets. Following the recent reports from China, if BOC will consider monetary measures to stimulate the Chinese economy, it could positively affect oil prices. The fundamentals from the demand side point out that oil market may continue to loosen up in the weeks to follow. But if OPEC’s oil supply will continue to dwindle it could tighten the oil market. These pressures from different directions could explains the sharp moves of oil prices but no clear trend in sight for WTI or Brent. 

Finally, if major exchange rates including EURO and Aussie dollar will further depreciate against the U.S. dollar, then they might also adversely affect oil prices.

I speculate during the upcoming week, WTI oil price will trade between $82 and $90 and Brent between $97 and $104.

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