Oil Outlook for June 30- July 4

The oil market cooled down for the first time in the past several weeks as WTI and Brent declined by 1.4% and 1.3%, respectively.  The difference of Brent oil over WTI remained steady last week; the premium ranged between $7.37 and $8.43. Will oil prices keep coming down? This week, several reports may impact the oil market including U.S NF payroll report, U.S and China’s manufacturing PMI, and EIA oil weekly report.

Here is a weekly outlook for the oil market for June 30th – July 4th:

Oil Prices –July

During last week, crude oil price (WTI) decreased by 1.4% and reached by Friday $105.74/b; moreover, Brent oil fell by 1.3% to reach $113.3/b;

In the chart below are the daily changes in WTI and Brent oil prices during the past several weeks (prices are normalized to April 30th, 2014).

oil forecast Brent and WTI June 23  2014Premium of Brent over WTI – July

The gap between Brent and WTI oilwas in the range between $7.37 and $8.43 per barrel. During the week, the premium inched up by $0.01 per barrel.

Difference between Brent and WTI June 23 2014Oil Stockpiles, Demand and Supply

The oil stockpiles rose again by 5.1 MB and reached 1,809.9 million barrels. The linear correlation between the changes in stockpiles has declined again to -0.15: this correlation suggests that oil price was less related to the shifts in stockpiles. Let’s turn to the changes in supply/demand:

 

Supply: Oil imports fell by 1.6% during last week. Moreover, oil production edged down by 0.1%; the total supply declined by 0.8%;

Demand: Refinery inputs slipped by 0.3% last week. In total, the demand was slightly above the supply. This recent development may pull back up oil prices as the U.S oil market slightly tightened. After all, the linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.253.

The chart below presents the developments in the difference between supply and demand and the price of oil.

oil market tight loose oil price  June 27The next weekly report will be published on Wednesday, July 2nd and will refer to the week ending on June 27th.  

Oil Related News for the Week

Here are several news items that could affect the direction of oil prices:

Monday – China Manufacturing PMI: As of May, the Manufacturing PMI inched up to 50.8 – i.e. China’s manufacturing sectors are growing at a faster pace. If in the upcoming report the PMI keeps picking up, it could signal a rise in the progress of China’s manufacturing sectors;

Tuesday – U.S Manufacturing PMI: This report will pertain to June 2014. Back in May, the index rose to 55.4; this means the manufacturing is expanding at a faster rate;

Thursday – U.S. Non-Farm Payroll Report: In the last employment report referring to May 2014, the number of non-farm payroll employment expanded by 217K; the U.S unemployment rate remained unchanged at 6.3%. In the four reports, the average growth in employment was over 200K;

 

Oil Outlook and Breakdown

From the supply side, the drop in imports and modest fall in production are likely to tighten the oil market. Conversely, from the demand side, refinery inputs also fell. But  the demand was slightly above the supply. The difference between Brent and WTI remained in range between $6 and $8 and is likely to remain at this range.

The bottom line, on a weekly scale, the oil market is likely to keep cooling down, unless tensions in Iraq will intensify.

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