Oil price (WTI) slightly rose during last week. WTI oil inched up by 0.4%; Brent oil slipped by 0.8%. As a result, the gap of Brent oil over WTI narrowed again: The premium ranged between $6.48 and $7.82. Last week, the EIA’s weekly report showed a modest drop in oil’s stockpiles of 0.5 million barrels. Will oil change direction? This week, several reports may affect oil prices. These items include: U.S NF payroll report, U.S durable goods, U.S and China’s manufacturing PMI, and EIA oil weekly update.
Here is a weekly outlook for the oil market for March 3rd to 7th:
Oil Prices – February Overview
During last week, crude oil price (WTI) rose again by 0.38% and reached by Friday $102.59/b; on the other hand, Brent oil decreased by 0.71% to $109.07/b;
In the chart below are the daily shifts in WTI and Brent oil prices during the past several months (prices are normalized to December 31st, 2013). As you can see, Brent and WTI oil prices increased in recent weeks.
The difference between Brent and WTI oil narrowed again last week as it ranged between $6.48 and $7.82 per barrel. During the week, the premium dropped by $1.17 per barrel.
The oil stockpiles slipped by 0.5 MB and reached 1,728.6 million barrels. The linear correlation between the changes in stockpiles has remained stable at -0.197: this correlation implies that oil price, assuming all things equal, may slightly increase next week. But in order to better understand the fundamentals let’s examine the changes in supply and demand:
Supply: Oil imports dropped by 3.3% last week. Conversely, oil production remained unchanged; the total supply decreased by 1.6%;
Demand: Refinery inputs edged down by 0.2% last week. In total, the demand was lower than the supply, and the gap between supply and demand narrowed. This current gap may pressure down oil prices as the U.S oil market is moderately tighter than it was last week.
The chart below shows the shifts in the gap between supply and demand and the price of oil.
The next weekly report will be released on Wednesday, March 5th and will refer to the week ending on February 28th.
Oil Related News for the Week
Here are several news items that could influence oil investors:
Monday – China Manufacturing PMI (HSBC’s final estimate): This is HSBC’s last estimate of its February’s PMI index. Last month’s Manufacturing PMI reached 49.5 – i.e. China’s manufacturing sectors are contacting. If the updated PMI index drops again, this will suggest China’s manufacturing conditions aren’t improving;
Monday – U.S Manufacturing PMI: This report will pertain to February 2014. In January, the index tumbled down to 51.3%; this means the manufacturing is growing at a much slower pace; this index may affect stock markets, USD, and crude oil and natural gas markets;
Tuesday – Australian GDP Fourth Quarter 2013: This quarterly report will refer to the Australia’s GDP growth rate for the fourth quarter of 2013. In the third quarter of 2013, the GDP grew by 0.6% (seasonally adjusted). Australia is among the leading countries in exporting commodities such as oil, LNG, and metal ores to big economies such as China and Japan;
Thursday – U.S Factory Orders: This report will refer to the developments in U.S. factory orders of manufactured durable goods during February; in the latest report factory orders decreased by 1.5%; this report will offer some insight regarding the progress of the U.S economy;
Friday – U.S. Non-Farm Payroll Report: In the previous employment report regarding January 2014, the labor market modestly grew: The number of non-farm payroll employment increased by 113k – much lower than the number many had expected; the U.S unemployment rate inched down to 6.6%;
Oil Forecast and Breakdown
From the supply, the plunge in imports and stagnate production resulted in a drop in the oil supply. From the demand, refinery inputs slipped again. Further, the storage slightly fell. But in total, the supply was still higher than demand even though the gap between the two narrowed. This could suggest the oil market has moderately tighter. Looking forward, the upcoming reports regarding U.S and China could offer some additional information regarding the progress in the demand for oil. The gap between Brent and WTI ranged between $6 and $7. The tighter oil market in the U.S may further narrower the gap between WTI and Brent oil. Moreover, if the US dollar continues to weaken against the Euro, this could pull up oil prices.
The bottom line, on a weekly scale, I guess oil price may slightly rise; the gap between WTI and Brent may drop again.
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