Crude oil prices didn’t do much last week as the WTI nearly didn’t change on a weekly scale, while Brent oil declined by over 2%. The Brent premium over WTI edged down to $13-$14 range. The recent OPEC meeting was held last week. IEA monthly report came out last week- OECD oil inventories rose again. OPEC’s monthly update was released and showed the oil production nearly didn’t change. OPEC decided to keep the production ceiling at 30 million bbl/d. Another FOMC meeting will be held this week. If the Fed will announce of another stimulus plan it could affect the financial markets. During the weekend the Greek elections will take place. The results of these elections could raise the concerns over the possibility of Greece exiting the EU.
During the upcoming week there are several publications and events that may affect oil rates including the FOMC meeting, U.S housing starts, China’s manufacturing PMI, Japan’s trade balance and U.S jobless claims.
Here is an outlook and a weekly analysis on the crude oil market for June 18th to June 22nd:
Oil Prices –June
By Friday, June 15th crude oil price (WTI) edged up by 0.14% and reached $84.03/b; Brent oil decreased by 0.60% to $97.22/b; during last week, WTI spot oil edged down by 0.08% and Brent oil by 2.43%.
In the chart below are the changes in WTI and Brent oil prices during June (prices are normalized to May 31st). It show how both oil prices have had a downward trend during most of the month (UTD).
Premium of Brent over WTI – June
The difference between Brent oil and WTI spot oil edged down to $13-$14 per barrel range. During June the premium declined by 15.18%.
Standard Deviation
The standard deviations of both WTI and Brent oil prices remained low in June after they were high during May. This means the volatility of both energy prices has fell in June to their lowest level in 2012 (so far).
Oil Stockpiles –Rose by 1.1Mb
U.S. crude oil stockpiles rose again last week by 1.1 million bl. For the week ending on June 1st oil stockpiles reached 1,784.416 million barrels.
The upcoming report will be published on Wednesday, June 20th and will refer to the week ending on June 15th.
OPEC’s Oil Production Remained Unchanged in May
According to the latest June report by the Organization of the Petroleum Exporting Countries, OPEC’s crude oil production reached 31,582 thousand bbl/d in May compared with 31,640 thousand bbl/d in April. This means the total OPEC oil supply edged down by 57.8 thousand during May. Libya‘s oil production slightly rose again by 57.5 thousand bbl/d to 1,452 thousand bbl/d. Saudi Arabia’s oil production also slightly increased by 39.7 thousand bbl/d. On the other hand Iran’s oil production slightly declined by 71.7 thousand bbl/d and is currently at its lowest production level this year.
IEA Oil Report for May – OECD Oil Inventories Rise Again
According to the latest June report prepared by the International Energy Agency on the recent changes in global crude oil market for April/May 2012, the global Oil Supplies rose again in May; the non-OPEC supply also increased during last month. OECD oil inventories expanded during April. Lastly, the global refinery crude demand is set to rise in the upcoming season.
Main Oil Related News Items for the upcoming week
Tuesday–Euro Area ZEW economic sentiment: The upcoming publication will refer to the ZEW indicator of economic sentiment for Euro Area for June 2012. For May 2012 the ZEW indicator for Euro Area fell to -2.4;
Tuesday – U.S. Housing Starts: in the previous report, the adjusted annual rate reached 717,000 in April 2012, which was 2.6% above March’s rate;
Tuesday– Japanese Trade balance: The Japanese trade balance deficit for April 2012 fell by 22.1% compared with March 2012, to reach 480.1 billion YEN (roughly $6.07 billion) deficit (seasonally adjusted figures). This decrease is due to the decrease in imports by 1.7%, and the growth in exports by 0.5%. Japan is among the leading importing countries of commodities; its trade balance could provide some insight into Japan’s changes in demand goods and services;
Wednesday– FOMC Meeting (Statement & Press Conference): The FOMC will convene for the fourth time this year and will decide at the end of two day of meetings on the its interest rate and monetary policy; I think the FOMC won’t announce of another stimulus plan, especially since the U.S’s economic progress is still growing and especially after the recent testimony of Bernanke; the FOMC statement may affect the US dollar and commodities prices;
Wednesday – China flash Manufacturing PMI: according to the HSBC Manufacturing PMI report for April the Manufacturing PMI edged down to 48.7; this index indicates the developments in China’s manufacturing sectors growth; if this negative growth will continue, this may also adversely affect commodities prices;
Thursday –Retails Sales Canada: This report may affect the USD/CAD exchange rate, which is strongly correlated with oil prices. In the previous report for March 2012, retails sales rose by 0.4%;
Thursday – U.S. Existing Home Sales: in the previous report regarding April 2012 the number of homes sold rose: the seasonally adjusted annual rate of 4.62 million home sales – a 3.4% increase; if this trend will continue it may help rally the U.S dollar;
Thursday – Philly Fed Manufacturing Index: In the May survey, the growth rate fell from +8.5 in April to -5.8 in May 2012. If this trend will continue this index may adversely affect oil prices (the recent Philly Fed review);
Thursday 13:30 – U.S. Jobless Claims: in the latest report the jobless claims rose by 6k to 386,000; this upcoming weekly update may affect energy commodities rates;
Forex and Crude Oil Prices –June
The EURO/USD exchange rate rose last week by 0.97%. Furthermore, the AUD/USD also increased by 1.59%. There are still positive correlations among these foreign exchange rates (EURO/USD, AUD/USD) and crude oil rate. If the U.S dollar will depreciate again against the EURO and Aussie dollar, it may curb the fall of oil prices.
Oil Prices Outlook and Analysis:
The Brent premium over WTI oil edged down and this trend may continue as the OECD oil inventories are increasing and the projections of the oil demand in Europe aren’t rising. The WTI might decline especially if the upcoming U. reports including Philly Fed, housing starts and existing home sales won’t meet expectations. The ongoing European debt crisis including the recent news about the Greek elections could affect the forex and commodities markets. The fundamentals (from both the demand and supply sides) point out that oil market is still loose so unless there will be a surprise we may not see any sharp gains in oil prices during the week. The FOMC meeting might affect the commodities prices if the Fed will launch QE3 (but I doubt that).
Finally, if major exchange rates including EURO and Aussie dollar will appreciate against the U.S. dollar, then they may edge up oil prices.
I speculate during the upcoming week, WTI oil price will trade between $80 and $86 and Brent between $93 and $99.
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