During last week, crude oil prices resumed their upward trend as the price of WTI oil and Brent oil increased. OPEC’s monthly report showed there was a modest decline in OPEC’s oil production; according the IEA, the projected growth in oil’s demand was revised down. These two reports didn’t seem to affect much the development in the price of oil. The oil stockpiles declined again during last week by 4.3 M bl. The tensions in Middle East remains high but I still think the recent rally in the price of oil won’t last long. During last week, WTI oil rose by 2.2%; Brent oil, by 1.7%. The gap between the Brent oil and WTI widen again: The difference between Brent and WTI ranged between $21 and $24. During the upcoming week there are several reports and events that may affect the oil market including: U.S CPI, Euro summit, China’s GDP, U.S retail sales, and Philly Fed survey.
Here is a weekly outlook and analysis of the crude oil market for October 15th to 19th:
Oil Prices –October
During last week, crude oil price (WTI) rose by 2.2% and reached by Friday $91.86/b; Brent oil, also increased by 1.74% to $114.21/b; during September-October, WTI spot oil fell by 0.36%; Brent oil rose by 0.84%.
In the chart below are the developments in WTI and Brent oil prices during the month (prices are normalized to September 28th). As seen, oil traded with a mixed trend during recent weeks.
Premium of Brent over WTI –October
The difference between Brent oil and WTI spot oil rose again during last week; it ranged during last week between $21 and $24 per barrel range. During the month the premium rose by 6.07%.
Oil Stockpiles –Declined by 4.3 Mb
The oil stockpiles fell again during the previous week by 4.3 M bl to reach 1,792 million barrels. The linear correlation between the changes in stockpiles tends to be negative: the linear correlation between oil price and the lagged by one week oil stockpiles is -0.18, this suggests that the price of oil, assuming all things equal, will increase next week. The upcoming report will be published on Wednesday, October 17th and will refer to the week ending on October 12th.
OPEC Monthly Report
According to the recent OPEC monthly report, OPEC’s oil production decreased to 31,078 thousand bbl/d in September compared with 31,343 thousand bbl/d in August. This means the total OPEC oil supply slightly declined by 264.8 thousand during last month. Libya‘s oil production slightly rose by 21 thousand bbl/d to 1,485 thousand bbl/d. The current production levels are still nearly 7% below Libya’s average oil production of 1,600 thousand bbl/d in 2010. Saudi Arabia’s oil production remained nearly unchanged at 9,854 thousand bbl/d. Iran’s oil production also remained almost flat as it reached 2,723 thousand mark, which is still its lowest production level in recent years.
IEA Monthly Report
According to the recent IEA report, OECD’s oil stockpiles fell by 11.2 million bbl/d during August. On the other hand, global oil demand growth was revised down 0.7 million bbl/d for 2012 to an estimate of 89.7 million bbl/d. Non-OPEC output was also revised down for 2012 to reach 53.2 million bbl/d – an annual growth of 0.4 million bbl/d. Finally, the global refinery crude demand was revised up by 140 kbl/d during the third quarter of 2012. This news shows some mixed signal but the general sentiment might suggest that oil prices will come down, mainly on account of the decline in the demand for oil.
Main Oil Related News Items for the upcoming week
Monday –U.S. Retail Sales Report: in the last report for August, the retail sales increased by 0.8% from the previous month; gasoline stations sales rose by 5.5% during August; this report could signal the changes in U.S’s gasoline demand and thus may affect the price of oil;
Tuesday –German ZEW economic sentiment: For September the ZEW indicator for Germany rose to -18.2 points; if Germany’s economic sentiment won’t show signs of improvement, the Euro will plausibly remain weak against other currencies;
Tuesday –U.S CPI: This monthly report will refer to the main changes in the consumer price index for September. According to the U.S Bureau of Labor statistics in August, the CPI rose by 0.6%(M-o-M);
Wednesday –China Third Quarter GDP 2012: during Q2 2012, China expanded by only 7.6% in annual terms; the current expectations are that the Q3 2012 grew in annul terms may even further fall; if the growth rate will be lower than in the previous quarter it might adversely affect commodities;
Thursday – Philly Fed Manufacturing Index: In the recent September survey, the growth rate rose from -7.1 in August to -1.9 in September. If the index will remain negative it may adversely affect not only U.S Dollar but also commodities prices (the recent Philly Fed review);
Foreign Exchange and Oil Prices Relation – October
The EURO/USD currency pair declined last week by 0.7%; alternatively, the AUD/USD rose by 0.5%. These changes may have affected the prices of oil. Further, there are still positive correlation among these currencies pairs (EURO/USD, AUD/USD) and oil prices. E.g. the linear correlation between the price of oil and AUD /USD was 0.47 during September/October. If the U.S dollar will further decline against the EURO and Aussie dollar, it may pull up oil prices.
Oil Prices Outlook and Analysis
The difference between Brent and WTI oil slightly increased again during last week and may continue to rally during next week. Oil stockpiles fell last week, which could suggest that oil prices in the U.S will further rise next week. The upcoming U.S reports including U.S retail sales and Philly Fed index could affect oil rates. If the report will show little progress, it could curb the rally of oil prices. If there will be some positive news from Europe, mainly in regards to the highly anticipated EU Summit, it could help rally oil prices. If China’s GDP won’t rise by a sharper growth rate than in previous quarters, it could also pull down the price of oil. Finally, if major currencies including EURO and Aussie dollar will appreciate against the U.S. dollar, then they may positively affect oil prices. The bottom line is that I suspect oil prices will slightly rise during the upcoming week.
I speculate during the upcoming week, WTI oil will trade between $89 and $94 and Brent between $112 and $118.
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