During last week, crude oil prices sharply rose, which coincided with the upward trend in other commodities and stock markets. The recent conflict in the Middle East may have had some short term effect on the volatility of oil markets. According to the latest EIA report, the oil stockpiles fell by 6.2MB. During last week, WTI oil increased by 1.92%; Brent oil, by 2.23%. As a result, the gap between the Brent oil and WTI slightly expanded; nonetheless, the difference between Brent and WTI ranged again between $22 and $23. Will oil prices continue their upward trend next week? During the forthcoming week there are several publications that could affect oil prices. These reports include: U.S core durable goods, GDP for Q3 and EIA oil weekly report.
Here is a weekly projection and analysis for the crude oil market for November 26th to 30th:
Oil Prices – November
During last week, crude oil price (WTI) rose by 1.92% and reached by Friday $88.28/b; Brent oil increased by 2.23% to $111.38/b; during November, WTI oil rose by 2.37%; Brent oil, by 2.47%.
In the chart below are the developments in WTI and Brent oil prices during November (rates are normalized to October 31st). As seen, the prices of oil had a moderate upward trend during recent days.
The difference between Brent oil and WTI spot oil slightly rose during the week but remained in the range between $22 and $23 per barrel. During the month the premium expanded by 2.85%.
The oil stockpiles declined again by 6.2MB and reached 1,782.9 million barrels. The linear correlation between the shifts in stockpiles tends to be negative: this correlation implies that the price of oil, assuming all things equal, will rise next week. The upcoming report will be published on Wednesday, November 28th and will refer to the week ending on November 23rd.
Main Oil Related News Items for the upcoming week
Tuesday – U.S Core Durable Goods: This report may indirectly indicate the shifts in U.S. demand for commodities such as oil. As of September 2012, new orders of manufactured durable goods declined by $19.6 billion to $218.2 billion;
Wednesday – U.S. New Home Sales: in the previous report (for September), the sales of new homes rose to an annual rate of 389,000 – a 5.7% gain (month over month); if the number of home sales will continue to rally, it may indicate a sign of some recovery in the U.S real estate market which may also affect the strength of the USD;
Thursday – Second U.S GDP 3Q 2012 Estimate: In the preliminary estimate, the U.S GDP during the third quarter expanded by 2%; in the 2Q2012 the GDP growth rate reached only 1.3% (annual rate). This presents a modest rise in the growth rate for the US’s GDP. If the GDP growth rate will rise, it could positively affect oil prices;
Friday – Canada’s GDP by Industry: In the recent report regarding August 2012, the real gross domestic product edged up by 0.1%. This report may affect the strength of the Canadian dollar currency which is strongly correlated with crude oil;
Friday – China Manufacturing PMI: According the recent report regarding October 2012 the Manufacturing PMI rose to 50.2; this means that China’s manufacturing sectors expanded at a slow pace; the recent flash manufacturing PMI increased to a 13 month high. If this upcoming report will also present an additional growth, it could signal a rise in China’s economy.
Thursday – Flash German, French and Euro Area Manufacturing PMI: In October, the German PMI declined to 45.7 i.e. the manufacturing conditions are contracting at a slightly faster rate;
Foreign Exchange and Oil Prices Relation – November
The EURO/USD currency pair increased last week by 1.8%. Further, the AUD/USD also rose by 1.16% during last week. This upward trend may have contributed to the rise in oil prices. Further, there are still positive correlation among these currencies pairs (Euro/USD) and oil prices, even though the relation has strengthened during the month. E.g. the linear correlation between the price of oil and AUD /USD was 0.53 during November. If the U.S dollar will appreciate against the EURO and AUD, it may positively affect oil prices.
Oil Prices Outlook and Analysis
Following the high volatility in the prices of oil during the pervious week, there might a drop in volatility during this week. The recent tensions in the Middle East seem to be over for now and could pull down the prices of oil. The difference between Brent and WTI oil remained in its range last week and might contract during next week. Oil stockpiles declined last week, which could suggest that oil prices in the U.S will rise next week. The upcoming reports including China’s manufacturing PMI, U.S GDP, and core durable goods could affect the path of oil from the projected demand side. If these reports will show some growth, they could pull up the prices of oil. Finally, if major currencies including EURO and Aussie dollar will continue to appreciate against the U.S. dollar, then they may also positively affect oil prices. The bottom line, I guess the prices of oil will continue to slightly rise on a weekly scale even thought they could start the week with a correction to last week’s rise.
I speculate during the forthcoming week, WTI oil will trade between $86 and $92 and Brent between $108 and $114.
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