Crude oil continued to trade high but didn’t move much on a weekly scale. During last week Brent oil added 1.16% to its value and WTI rose by 0.66%. The premium of Brent oil over WTI slightly increased but remained in the $17 to $19 range. Will crude oil prices start to rise? There are many news items and events that may affect the direction of crude oil prices during the upcoming week. So here is an outlook and analysis for the crude oil market for the week of March 12th to 16th:
Crude Oil Prices – March Update
On Friday, March 9th crude oil price (WTI) increased by 0.77% and reached $107.40/b; Brent oil price also rose by 0.2% to $125.83/b; during last week, WTI spot oil rose by 0.66% and Brent oil by 1.16%.
In the chart below are the changes of WTI and Brent prices during March (prices are normalized to February 29th).
Premium of Brent over WTI – March Update
The gap between Brent oil and WTI spot oil slightly rose during last week, but was still in the range of $17-$19 per barrel. During March the premium increased by 9.57%. The tensions between Iran and Europe including Iran’s threat to close Strait of Hormuz will probably keep the Brent premium high in the weeks to come.
During March the correlation between Brent oil price and WTI oil price (daily percent changes) rose to 0.79 – the highest leveling 2012. This means the relation between WTI and Brent oil prices is still strong. This figure coincides with the stabilization of the gap between Brent and WTI.
Standard Deviation
The standard deviations of oil prices sharply fell during March to their lowest level since January 2012. This might indicate that both crude oil prices’ volatility has sharply decreased during recent weeks.
OPEC Oil Production Slightly Rose in February
This monthly report showed the main developments in crude oil and natural gas’s supply and demand worldwide; according to the recent report which was published on Friday, March 9th, OPEC’s crude oil production reached 30,968 thousand bbl/d in February. Libya’s oil production rose again by 180 thousand bbl/d to 1,188 thousand bbl/d. The current production levels are still nearly one third below Libya’s average oil production of 1.6 million bbl/d in 2010 (Here is a summary of the recent OPEC report);
Crude Oil Stockpiles –Declined Last Week
U.S. crude oil stockpiles declined last week by 1.4 million barrels. For the week ending on March 2nd oil stockpiles reached 1,753.995 million barrels. The current oil stockpiles are still below the quota from last year: the current crude oil stockpiles are 17.357million barrels below oil stockpiles levels recorded during the parallel week in 2011.
The upcoming report will come out on Wednesday, March 14th and will refer to the week ending on March 9th.
IEA Monthly Oil Report for February
This upcoming report will present an updated (as of February) outlook and analysis for the global crude oil market for 2012 and 2013 (a summary of the previous report);
The report will be published on Wednesday, March 14th.
Main Oil Related News Items
Tuesday–German ZEW economic sentiment: The upcoming monthly update will refer to the ZEW indicator of economic sentiment for Germany for March 2012. In February, the ZEW indicator for Germany rose to 5.4%;
Tuesday–U.S. Retail Sales: according to the recent report gasoline stations sales increased by 1.4% in January, and were also 7.4% above sales in January 2011; this report could signal the changes in U.S’s gasoline demand (for my review of the previous retail sales report).
Tuesday– FOMC Meeting: I think the FOMC won’t announce of QE3, especially since the U.S. economy shows signs of recovery; the FOMC meeting may affect the strength of US dollar and consequently crude oil prices;
Wednesday– Bernanke Speech: Bernanke will give a speech titled “Community Banking“;
Thursday– U.S. PPI: This report will present the progress in the PPI during February 2012, i.e. the inflation rate from producers’ stand point. In the previous report regarding January this index for finished goods edged up by 0.1% compared with December’s rate and rose by 4.1% in the past 12 months; this news might affect the direction of oil prices;
Thursday– Philly Fed Survey: In the last survey, the index grew from +7.3 in January 2012 to +10.2 in February. This index may affect oil prices (the recent Philly Fed review);
Friday–U.S Core Consumer Price Index: This monthly report will present the main changes in the core consumer price index during February 2012. According to the U.S Bureau of Labor statistics in January 2012, the core CPI slightly rose by 0.20% (M-o-M) and also increased over the last 12 months by 2.3%.
Forex and Crude Oil Prices – March
The EURO/USD exchange rate decreased during last week by 0.57%; the developments regarding the Greek debt crisis, the ECB rate decision, the EU GDP contraction by -0.3% in Q4 2011 and the publication of ECB financial reports for 2011 may have been among the factors to affect the direction of the Euro/USD during the week. Furthermore, the AUD/USD also declined by 1.46%. There are still positive and mid-strong linear correlations among these exchange rates (EURO/USD, AUD/USD, CAD/USD) and crude oil prices; e.g. during February/March, the correlation between WTI and AUD/USD is 0.34 and between WTI and Euro/USD is 0.30). If the U.S dollar will further appreciate against the EURO, Canadian dollar and Aussie dollar during the week, it may adversely affect crude oil prices.
Crude Oil Prices Outlook and Analysis:
The premium of Brent over WTI slightly rose in recent week but didn’t reach new highs we didn’t see in 2011. The U.S economy continues to show signs of recovery and thus may keep the WTI oil price high. From the supply side, the tensions between Iran and Europe may also help keep the oil prices high.
In the upcoming week there are several financial reports and events that may affect crude oil prices including the U.S retail sales, FOMC meeting, Bernanke’s speech, IEA monthly report, U.S. PPI and CPI and Philly Fed manufacturing index. If the FOMC won’t announce of QE3 and these U.S related reports will mostly show signs of recovery in the U.S economy they may pressure up crude oil. Finally, if major currencies including EURO, and Aussie dollar will depreciate against the U.S. dollar, it may adversely affect crude oil prices.
I speculate during the upcoming week, WTI oil price will trade in the range of $104-$112 and Brent oil price between $122 and $128.
For further reading:
- Weekly Outlook for 12-16 March
- Gold & Silver Prices | Weekly Recap March 12-16
- Crude Oil Prices Yearly Report 2011-2012