The rate of crude oil (both WTI and Brent) tumbled down again during last week: WTI decreased by 2.32%; Brent oil fell by 2.19%. As a result, the difference between the Brent oil and WTI remained nearly unchanged; the gap between Brent and WTI ranged between $8 and $9. According to the recent EIA report, oil stockpiles increased again by 9.7Mb. Conversely, imports and production decreased during last week. Refinery inputs slightly rose. Will oil further decline next week? In the upcoming week, several publications and events may affect the oil market. These items include: U.S manufacturing PMI, U.S non-farm payroll report and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for June 3rd to June 7th:
Oil Prices – May
During the previous week, crude oil price (WTI) fell again by 2.32% and reached by Friday $91.97/b; moreover, Brent oil also declined by 2.19% to $100.39/b; during May, WTI oil slightly fell by 1.59%; Brent oil, by 1.93%.
In the chart below are the developments in WTI and Brent oil prices in the past several months (prices are normalized to January 31st). As seen in the chart herein, the oil prices have declined in the past couple of weeks.
The gap between Brent oil and WTI spot oil slightly expanded to the range between $8 and $9 per barrel. During May, the premium declined by 5.50%.
The oil stockpiles increased again by 9.7 MB and reached 1,812.2 million barrels. The linear correlation between the changes in stockpiles has slightly weakened and reached -0.184: this correlation implies that oil price, assuming all things equal, will fall again during next week.
Oil imports to the U.S declined by 1.1% last week. The weekly changes in oil imports have a mid-strong negative relation (-0.316) that imply oil prices may rally next week. Refinery inputs slightly rose last week while oil production inched down. In other words, the fall in imports and production might suggest the oil market has slightly tightened in the U.S.
The next weekly update will be published on Wednesday, June 5th and will pertain to the week ending on May 31st.
OPEC’s 163rd Summit – No Change to Quota
The biannual OPEC summit was held last week on May 31st in Vienna, Austria. In this summit the OPEC leaders decided that OPEC’s oil production quota will remain unchanged at 30 million bbl/d. This decision may help pull down the pressure on the price of oil from the supply side.
Main Oil Related News Items for the upcoming week
Monday – U.S. Manufacturing PMI: During April, the index declined to 50.7%; this means the manufacturing is growing at a slower rate; this index may affect crude oil markets.
Wednesday – U.S Factory Orders: in the previous report factory orders fell by 4%; this report will offer some insight regarding the growth of the U.S economy;
Friday – U.S. Non-Farm Payroll Report: in the latest update for April 2013, the labor market increased again; if in the upcoming report the employment will rise again by over 150 thousand (in additional jobs), this may pull up the price of oil (see here my last review on the U.S employment report);
Foreign Exchange and Oil Prices Correlations – May
During the previous week, the EURO/USD rose again by 0.52%; on the other hand, the AUD/USD fell again by 0.84%. 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 0.28 during May. Nonetheless, if the U.S dollar will appreciate against “risk currencies”, this could drag down oil prices.
Oil Prices Outlook and Analysis
From the supply side, the decision of OPEC to keep oil production quota unchanged lowers the uncertainty around this commodity’s price. The rise in refinery inputs U.S might adversary affect oil prices. Moreover, the ongoing buildup in storage is another indication for an increase in supply or a decline in demand, which could also suggest that oil market continues to loosen up in the U.S. On the other hand, the fall in imports and production in the U.S might pressure up oil price. From the demand side, the upcoming reports regarding U.S employment, factory orders and manufacturing PMI might provide an update to the expected changes from demand sides. If the reports will show growth, they could pull up the prices of oil. China’s recent manufacturing PMI report showed a growth in manufacturing sector. This may also help pull up the price of oil. The gap between Brent and WTI oil ranged between $8 and $9 and might remain this range in the coming weeks. Finally, if major currencies such as the EURO and Aussie will rally against the U.S. dollar, they may positively affect oil prices. The bottom line, I guess the prices of oil will change course and rally next week.
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