During the previous week, oil price (WTI) inched up while Brent oil declined: WTI rose by 0.28%; Brent oil declined by 1.57%. As a result, the gap between the Brent oil and WTI shrunk again to its lowest level since July 2012; the difference between Brent and WTI ranged between $13 and $15. Based on the latest EIA report, oil stockpiles fell again by 1.4 MB. Will oil continue to slowly increase next week? During next week, several publications may affect the oil market. These items include: Cyprus developments, core durable goods, GDP for Q4 (final estimate) and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for March 25th to March 29th:
Oil Prices – March
During last week, crude oil price (WTI) slightly rose again by 0.28% and reached by Friday $93.71/b; conversely, Brent oil fell by 1.57% to $107.66/b; during the month, WTI oil rose by 1.8%; Brent oil declined by 3.34%.
In the chart below are the changes in WTI and Brent oil prices during February-March (rates are normalized to January 31st). As seen below, the rates of oil have had an unclear trend in recent weeks.
Premium of Brent over WTI – March
The gap between Brent oil and WTI spot oil has sharply contracted during last week as it ranged between $13 and $15 per barrel. During the month, the premium plummeted by 27.83%.
Oil Stockpiles – Declined by 1.4Mb
The oil stockpiles declined again by 1.4 MB and reached 1,775.3 million barrels. The linear correlation between the changes in stockpiles remained mid-strong and negative: this correlation implies that the price of oil, assuming all things equal, will moderately rise again next week.
Moreover, the oil imports to the U.S sharply fell by 1.2% last week. The weekly changes in oil imports have a mid-strong negative relation (0.33) that suggests oil prices will moderately rise next week.
The next weekly update will come out on Wednesday, March 27th and will pertain to the week ending on March 22nd.
Main Oil Related News Items for the upcoming week
Tuesday – U.S Core Durable Goods: This report may indirectly indicate the changes in U.S. demand for commodities such as oil. As of January 2013, new orders of manufactured durable goods decreased to $217.00 billion; if this report will present another drop in new orders then it could drag down commodities prices;
Thursday – Third U.S GDP 4Q 2012 Estimate: In the recent estimate the U.S GDP edged up by 0.1% in the fourth quarter; in the third quarter the GDP grew by 2.7%; in the 2Q2012 the GDP growth rate reached 1.7% (annual rate). This presents a decline in the growth rate for the US’s GDP. If there will be a sharp change in the growth rate from second to the third Q4 estimate, this could affect commodities prices.
Foreign Exchange and Oil Prices Correlations – March
During last week, the EURO/USD declined by 0.67%. Conversely, the AUD/USD increased by 0.34% during last week. The correlations among these currencies pairs (Euro/USD) and oil prices remained strong and robust. E.g. the linear correlation between the rate of oil and EURO /USD was 0.57 during February-March. If the U.S dollar will continue to weaken against the “risk currencies”, this may pull down oil prices.
Oil Prices Outlook and Analysis
Following the moderate rise in the price of oil last week, oil prices might continue to slowly increase. From the supply side, the decline in oil imports to the U.S will keep oil prices rising. From the demand side, the low to no growth in Europe along with the recent developments in Cyprus might keep Brent oil prices from rising. The upcoming reports regarding the U.S and oil might shed some light on the expected changes from demand side. If the reports will show growth, they could pull up the prices of oil. The gap between Brent and WTI oil ranged between $13 and $15 and might continue to slowly decline in the coming days as the US economy is progressing (WTI oil) while the EU economy (Brent oil) is contracting. Oil stockpiles only slightly declined last week, which could slightly pressure up oil prices in the U.S this week. Finally, if major currencies such as the EURO will continue to decline against the U.S. dollar, they may curb the rally of oil prices. The bottom line, I guess the prices of oil will slightly rise again on a weekly scale.
My guess is that WTI oil will range between $92 and $96 and Brent between $106 and $110 during the week.
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