Oil Outlook for June 9-13

The oil market didn’t move much last week as oil prices (WTI and Brent) slightly declined during last week. WTI inched down by 0.05%; Brent oil declined by 0.73%. As a result, the gap of Brent oil over WTI slightly narrowed by the end of the week; the premium ranged between $5.95 and $6.36. Last week, the EIA’s update showed a sharp rise buildup in oil’s stockpiles of 8.8 million barrels. Will oil price keep slowly descending? This week, several reports and events may affect the oil market including OPEC’s Summit, U.S JOLTS, U.S retail sales, EIA and OPEC monthly updates, China’s trade balance, and EIA oil weekly report.

Here is a weekly outlook for the oil market for June 9th – June 13th:

Oil Prices –June

During last week, crude oil price (WTI) inched down by 0.05% and reached by Friday $102.66/b; moreover, Brent oil slipped by 0.73% to reach $108.61/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 8 2014Premium of Brent over WTI – June

The gap between Brent and WTI oilwas in the range between $5.95 and $6.36per barrel. During the week, the premium slipped by $0.75 per barrel.

Difference between Brent and WTI June 8 2014Oil Stockpiles, Demand and Supply

The oil stockpiles grew again by 8.8 MB and reached 1,792.55 million barrels. The linear correlation between the changes in stockpiles has remained around -0.205: this correlation implies that oil price, assuming all things equal, may decline again next week. But in order to better examine the fundamentals let’s examine the changes in supply and demand:

Supply: Oil imports increased again by 0.8% during last week. Moreover, oil production inched up by 0.1%; the total supply rose by 0.4%;

Demand: Refinery inputs inched up by 0.2% last week. In total, the demand was still higher than the supply but the gap between the two narrowed again. This recent development may keep pressure down oil prices as the U.S oil market further loosens. 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 -0.263.

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 8The next weekly report will be released on Wednesday, June 11th and will refer to the week ending on June 6th.  

OPEC Summit

This is the first meeting for this year for OPEC members, in which the members will decides on any changes to the OPEC’s oil production quota.

OPEC Monthly Report

The OPEC report will show the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also pertain to the shifts in the production of OPEC countries during May 2014;

The next report will be published on Thursday, June 12th.

IEA Monthly Report

This upcoming monthly report will present an updated (for May) outlook and analysis for the global crude oil and natural gas market for 2013 and 2014.

The next report will be published on Friday, June 13th.

Oil Related News for the Week

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

Monday – China’s Trade Balance: According to the recent monthly report, China’s trade balance rose from to a $18.5 billion surplus; if the surplus expands further, it could indicate China’s economy is improving and thus may positively affect commodities prices;

Tuesday – U.S JOLTS Job Openings: The Bureau of Labor Statistics will release its monthly update on the U.S number of job openings during May, excluding the farming industry; in the past report regarding April, the number of jobs opening was 4.01 million;

Thursday –U.S. Retail Sales Report: This monthly update refers to May; in the last report regarding April, retail sales inched up by 0.1% (month-over-month); core retail remained flat; this report also shows the developments in U.S’s gasoline retail sales, which could provide some input regarding the developments in demand for gasoline; 

Oil Outlook and Breakdown

From the supply side, the ongoing buildup in imports and modest but steady growth in production are likely to keep loosening up the oil market. Moreover, from the demand side, refinery inputs inched up. In total, while the demand remained higher than the supply, the gap between the two narrowed again.  Adding the recent high buildup to the oil stockpiles, and the oil market seems to loosen. The difference between Brent and WTI remained in range between $5 and $6 and is likely to slightly contract further to the $4 and $6 range.

The bottom line, on a weekly scale, oil is likely to keep slowly falling, unless the upcoming OPEC, IEA, or EIA reports show a major shift in direction, and unless OPEC make any dramatic changes to its policy.   

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