The prices of crude oil (WTI and Brent) didn’t do much during last week: WTI rose by 1.9%; Brent oil slipped by 0.26%. As a result, the difference between the Brent oil and WTI sharply contracted; the difference between Brent and WTI ranged between $6 and $7. According to recent EIA report, oil stockpiles changed direction and rose by 12.8Mb. Moreover, imports rose while production slipped during last week. Refinery inputs remained flat. OPEC’s monthly report revealed little change to OPEC’s oil production in May. The IEA updated its forecast for the growth in demand for oil in 2013. Will oil rise next week? In the upcoming week, several publications and decisions may affect the oil market. These items include: U.S Philly fed, China’s flash manufacturing PMI, FOMC decision, and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for June 17th to June 21st:
Oil Prices – June
During the previous week, crude oil price (WTI) rose by 1.9% and reached by Friday $97.85/b; conversely, Brent oil slipped by 0.26% to $104.29/b; during the month, WTI oil rose by 6.39%; Brent oil, by 3.88%.
In the chart below are the developments in WTI and Brent oil rate in the past few months (prices are normalized to January 31st). As seen in the chart herein, the oil prices have rallied in recent weeks.
The difference between Brent oil and WTI spot oil slightly fell again as it ranged between $6 and $7 per barrel. During June, the premium sharply fell by 23.52%.
The oil stockpiles changed direction and increased by 12.8 MB and reached 1,823.9 million barrels. The linear correlation between the shifts in stockpiles has slightly weakened to -0.188: this correlation implies that oil price, assuming all things equal, will dwindle next week.
Oil imports to the U.S rose by 0.7% last week. The weekly shifts in oil imports have a mid-strong negative correlation (-0.306) that implies oil prices may fall next week. Refinery inputs remained flat last week while oil production declined. In other words, the rise in imports might suggest the oil market has slightly loosened in the U.S.
The next weekly update will come out on Wednesday, June 19th and will refer to the week ending on June 14th.
OPEC’s production remained stable
OPEC’s crude oil production slightly rose to 30,567 thousand bbl/d in May compared with 30,462 thousand bbl/d in April. Saudi Arabia‘s oil production rose by 143.4 thousand bbl/d to 9,367 thousand bbl/d. Iran’s oil production remained stable at 2,644 thousand, which is around 11% below the average production levels in 2012 and 27% below the production in 2011.
Other OPEC countries’ production remained flat in during May 2013.
The oil supply of non-OPEC countries was revised upwards to an estimate of 53.96 million bbl/d in 2013, a rise of 0.98 million bbl/d compared with 2012′s oil supply.
Assuming that OPEC’s supply will remain flat in 2013 at the same quota as in the first five month of the year at 30.3 million bbl/d and adding to that OPEC’s NGL’s and non-conventional oil at an estimate of 5.87 the total global supply will reach in 2013 an estimate of 90.13 million bbl/d.
IEA updated its forecast for growth in oil demand
Based on the IEA recent report, the non-OPEC countries’ oil supply growth is expected to reach 1.1 mb/d in 2013. The global oil demand projection is expected to rise by 0.785 mbbl/d in 2013 compared with 2012′s demand.
Main Oil Related News Items for the upcoming week
Wednesday – FOMC Meeting and Press Conference: In the previous of meeting the FOMC left its policy unchanged. Moreover, Bernanke’s testimony didn’t offer any big headlines, even though he did suggest that tapering the current asset purchase program isn’t off the table and could happen in the near future. Considering the inflation is still very low, the unemployment is still well above the Fed’s goal of 6.5% and economic growth isn’t stable, I suspect the Fed won’t change its policy this time. If The Fed will implement any changes to its policy or change its forecast, these changes could stir up the commodities and equities markets;
Wednesday – China flash Manufacturing PMI: in the previous HSBC Manufacturing PMI survey regarding May 2013 the Manufacturing PMI slipped to 49.6; this index indicates China’s manufacturing sectors have contracted; if the index will continue to fall, this may adversely affect oil prices;
Thursday – Philly Fed Manufacturing Index: In the previous survey regarding May, the growth rate slipped from 1.3 in April to -5.2 in May. If the index will increase it may positively affect oil prices (the previous Philly Fed review);
Foreign Exchange and Oil Prices Correlations – June
During the previous week, the EURO/USD rose again by 0.98%; moreover, the AUD/USD rose again by 0.77%. 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 0.32 during May/June. Nonetheless, if the U.S dollar will continue to depreciate against “risk currencies”, this could pull up oil prices.
Oil Prices Outlook and Analysis
From the supply side, the rise in imports in the U.S may pull down oil prices. Moreover, the latest increase in storage is another indication for an increase in supply or a decline in demand, which could also suggest that the oil market has loosened up in the U.S. Last week’s OPEC report and IEA didn’t show of many changes to the global oil market. The ongoing slowdown in Europe compared to U.S is plausibly a contributing factor for the contraction in the gap between WTI and Brent. This trend is likely to continue in the coming weeks. From the demand side, the upcoming reports regarding U.S Philly fed, and China’s manufacturing PMI might provide an update to the expected changes from demand sides. If the reports will show contraction, they could pressure down the prices of oil. The upcoming FOMC statement and forecast could affect not only the USD but also oil prices especially if the Fed will announce of change to its policy or economic forecast. Finally, if major currencies such as the EURO and Aussie will continue to rise against the U.S. dollar, they may positively affect oil prices. These mixed trends could pull oil to different direction during next week.
The bottom line, I‘m neutral on oil.
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