Oil Weekly Outlook for July 22-26

The price of oil (WTI) rallied again during last week: WTI rose by 1.81%; Brent oil, on the other hand, slightly decreased by 0.68%. As a result, the premium of Brent oil over WTI plummeted; the premium ranged between $0.2 and $4. Based on the latest EIA weekly report, oil stockpiles slightly declined by 0.2Mb. In the U.S, refinery inputs and production rose while imports sharply fell during last week. The situation in Egypt hasn’t improved and is keeping the price of oil and its volatility high. Will oil continue to pull up next week? This week, several reports may affect the oil market. These items include: China’s manufacturing PMI, U.S durable goods, and EIA oil weekly update.

Here is a weekly outlook and analysis for the crude oil market for July 22nd to July 26th:

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.

oil forecast Brent and WTI July 22-26 2013

Premium of Brent over WTI – July

The difference between Brent and WTI spot oil sharply contracted again as it ranged between $0.2 and $4 per barrel. During July, the premium tumbled down by 96.43%. This is the lowest gap recorded between Brent and WTI since November 2010.

Difference between Brent and WTI  July 22-26  2013

Oil Stockpiles – Slipped by 0.2Mb

The oil stockpiles slightly declined by 0.2 MB and reached 1,817.8 million barrels. The linear correlation between the changes in stockpiles has slightly strengthened to -0.203: this relation suggests that oil price, assuming all things equal, will continue to rise next week.

Oil imports to the U.S sharply fell by 2.3% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.276) that suggests oil prices may increase again next week. Conversely, oil production and refinery inputs rose last week. In other words, the rise in production and refinery inputs might loosen the U.S oil market and thus curb the rally of oil prices.

The next weekly report will come out on Wednesday, July 24th and will refer to the week ending on July 19th.

Egypt Riots and Oil

The ongoing riots in Egypt could be among the factors contributing to the high oil price. The main concern revolves the potential blockage of the Suez Canal, in which nearly 3.8 million barrels per day transport through it. Keep in mind, 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

Tuesday – China flash Manufacturing PMI: in the previous survey regarding June the Manufacturing PMI declined again to 48.3; this index indicates China’s manufacturing sectors have contracted at a slightly faster pace than in May; if the index will continue to contract, this may adversely affect oil prices;

Thursday – U.S Core Durable Goods: This monthly report may indirectly indicate the changes in U.S. demand for commodities such as oil and gas. As of May 2013, new orders of manufactured durable goods increased to $231 billion; if this report will show another rise in new orders then it could pull up oil prices;

Oil Price Forecast and Analysis

From the supply side, the ongoing drop in imports could positively affect oil price. Conversely, the ongoing increase in production and refinery inputs may curb the recent rally of oil prices. The recent slight drop in U.S storage is another indication for a slight decline in supply or a moderate rise in demand, which could also suggest that the U.S. oil market has slightly tightening. From the demand side, the recovery of the U.S economy may positively affect oil prices. The upcoming reports including core durable goods could signal additional growth in demand for oil via the rise in U.S economic activity. The situation in Egypt is likely to keep the volatility of oil prices high. If the situation will cool down, oil prices’ rally might reach a halt and perhaps even drop. Finally, the closing of the gap between Brent and WTI in recent week may imply the tightening of the U.S oil market compared to the Europe nearly eliminated this premium. The low premium is likely to remain at its current range.   

The bottom line, on a weekly scale I guess oil price will continue to rise.

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