Oil Outlook for April 7-11

Oil prices (WTI and Brent) changed direction and declined last week. WTI and Brent oil slipped by 0.5% and 1.2%, respectively. As a result, the gap of Brent oil over WTI contracted again: The premium ranged between $5.2 and $6.2. Last week, the EIA’s weekly report showed a modest drop in oil’s stockpiles of 1.2 million barrels. Will oil bounce back? This week, several reports may affect oil prices. These items include: U.S PPI, China’s new loans, U.S JOLTS job opening, OPEC monthly report, IEA monthly update, and EIA oil weekly update.

Here is a weekly outlook for the oil market for April 7th – 11th:

Oil Prices – April Overview

During last week, crude oil price (WTI) decreased by 0.5% and reached by Friday $101.14/b; moreover, Brent oil dropped by 1.2% to $106.72/b;

In the chart below are the daily changes 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 changed direction and slipped in the past several days.

oil forecast Brent and WTI April 7-11  2014Premium of Brent over WTI – April

The difference between Brent and WTI oil narrowed last week as it ranged between $5.17 and $6.18 per barrel. During the week, the premium slipped by $0.82 per barrel.

Difference between Brent and WTI April 7-11  2014Oil Stockpiles, Demand and Supply

 

The oil stockpiles fell by 1.2 MB and reached 1,732.9 million barrels. The linear correlation between the changes in stockpiles has remained stable at -0.205: this correlation implies that oil price, assuming all things equal, may bounce back next week. But in order to better examine the fundamentals let’s consider the changes in supply and demand:

Supply: Oil imports fell by 1% last week. Furthermore, oil production slightly increased by 0.4%; the total supply decreased by 0.3%;

Demand: Refinery inputs rose by 0.2% last week. In total, the demand remained below the supply, and the difference between supply and demand slightly narrowed. This recent development may pull back up oil prices as the U.S oil market is slightly tighter than it was a week back. After all, the linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.302.

The chart below presents the changes in the difference between supply and demand and the price of oil.

oil market tight loose oil price  April 7-11If U.S oil market continues to tighten, this could pull up oil price.    

The next weekly report will be released on Wednesday, April 9th and will refer to the week ending on April 4th.

IEA Monthly Report

This upcoming monthly report will present an updated (for March) outlook and analysis for the global crude oil and natural gas market for 2013 and 2014.

The next report will be published on Thursday, April 10th.

OPEC Monthly Report

OPEC will release a monthly update of the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the changes in the production of OPEC countries during August 2012; this news may affect oil prices (See here a summary of the previous report).

The next report will be released on Friday, April 11th.

Oil Related News for the Week

Here are several news items that could influence oil investors:

Tuesday – U.S JOLTS Job Openings: The Bureau of Labor Statistics will publish its monthly update on the U.S number of job openings during March, excluding the farming industry; in the past report regarding February, the number of jobs opening was 3.97 million;

Thursday – China’s Trade Balance: According to the recent monthly update, China’s trade balance dropped from a surplus to a $23 billion deficit; if the deficit expands further, it could indicate China’s economy isn’t improving and thus may negatively affect commodities;

Thursday – China’s CPI: The CPI slipped to an annual rate of 2%; if the annual rate declines again, it could signal the Chinese economy is slowing down.

Oil Outlook and Breakdown

From the supply side, the recent sharp fall in imports offset the modest rise in production; and this resulted in a slight decline in oil supply. From the demand side, refinery inputs changed direction and slightly increased. Moreover, the storage moderately declined. In total, the supply was still higher than demand but the difference between the two narrowed. This could suggest the oil market has tightened. Looking forward, the forthcoming reports regarding the U.S and China could offer some additional insight regarding the latest changes in these two top oil consumers worldwide. The difference between Brent and WTI ranged between $5 and $7 and is likely to remain at this range.

The bottom line, on a weekly scale, oil might slightly recover in the near future.   

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