Crude Oil Prices – Weekly Outlook July 30- August 3

Crude oil prices started off the week with a sharp tumble but throughout the rest of the week both Brent and WTI recovered. The news of the decline in new home sales and pending home sales didn’t seem to affect the oil market. Even the modest growth in U.S GDP for Q2 didn’t seem hold back the recovery of oil prices. During the week, WTI oil declined by 1.43%; Brent oil, unlike WTI, finished the week 0.55% higher than the previous week.

During the upcoming week there are several reports that may affect oil market including the U.S non-farm payroll report, FOMC meeting, manufacturing PMI of China and U.S and EIA weekly oil report.  

Here is a weekly outlook and analysis of the crude oil market for July 30th to August 3rd:

Oil Prices –July

By Friday, July 27th crude oil price (WTI) rose by 0.83% and reached $90.13/b; Brent oil also increased by 1.5% to $107.92/b; during last week, WTI spot oil decreased by 1.43% while Brent oil rose by 0.55%.

In the chart below are the changes in WTI and Brent oil prices during the month (prices are normalized to June 29th). It show how both oil prices rose during most of last week.

oil forecast Brent and WTI spot rates  2012 30 July August 3

Premium of Brent over WTI – July

The gap between Brent oil and WTI spot oil expanded to $16-$17 per barrel range. During July the premium rose by 47.76%.

Difference between Brent and WTI  30 July August 3 2012

Oil Stockpiles –Rose by 10.1 Mb

U.S. crude oil stockpiles increased last week by 10.1 million bl. For the week ending on July 20th oil stockpiles reached 1,808 million barrels.

The upcoming report will be published on Wednesday, August 1st and will refer to the week ending on July 27th.

Main Oil Related News Items for the upcoming week

Tuesday – Canada’s GDP by Industry: In the previous report regarding April 2012, the real gross domestic product rose by 0.3%. This report may affect the strength of the Canadian dollar exchange rate which is strongly correlated with commodities rates;

Tuesday – China Manufacturing PMI: the Manufacturing PMI for June 2012 edged down to 50.2; if the index will continue to fall it could adversely affect commodities prices;

Wednesday – U.S. ISM Manufacturing PMI: This report will refer to the monthly developments in the manufacturing sector on a national level during July 2012. During June 2012 the index tumbled down to 49.7%, which means the manufacturing is contracting; this index might affect forex, crude oil and natural gas markets;

Wednesday – FOMC Meeting (two days): Following the testimonies of Bernanke at the Hill and the minutes of last month’s FOMC meeting, it seems as if there won’t be any substantial changes in the upcoming FOMC meeting. On the other hand, the recent appreciation of the USD, the low growth rate in employment and GDP for Q2 are probably pulling the odds up of another QE in the horizon. I think the FOMC won’t announce of another stimulus plan in this upcoming meeting. I speculate if there won’t any announcement of QE3 or any hints of the Fed moving toward this direction in the near future, oil prices are likely to decline;

Friday – U.S. Non-Farm Payroll Report: in June the number of non-farm payroll employment rose by only 80k; if the upcoming report will continue to show low growth of below 100 thousand (in additional jobs), this may raise the chances of the Fed introducing additional stimulus plan in 2012; this report might affect commodities prices (see here my last review on the U.S employment report).

Forex and Crude Oil Prices –July

The EURO/USD exchange rate rose last week by 1.36%; furthermore, the AUD/USD also increased by 1.01%. There are still positive relations among these currencies pairs (EURO/USD, AUD/USD) and crude oil rate. E.g. the linear correlation between the oil price and Euro/USD is 0.73 during July. If the U.S dollar will further depreciate against the EURO and Aussie dollar, it may positively affect oil prices.

Oil Prices Outlook and Analysis

The gap between Brent and WTI oil expanded during last week and may continue at this direction as the oil market in the U.S gets looser than in Europe. If the FOMC won’t make any announcements or changes to its monetary policy this could adversely affect oil rates. If ECB and MPC won’t change each respective monetary policy this could keep the Euro and GBP robust. The upcoming U.S reports including Manufacturing PMI and non-farm payroll could pull down the oil prices especially if they will continue to show little growth. If the Chinese Manufacturing PMI report will further decline it could also adversely affect oil rates. From the supply side, the tensions between U.S and Iran could reduce Iran’s oil production rate and pressure the oil market from the supply side. Finally, if major currencies including EURO and Aussie dollar will continue to rise against the U.S. dollar, then they might pull up oil prices.

I speculate during the upcoming week, WTI oil price will trade between $85 and $91 and Brent between $102 and $107.

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