The price of oil (WTI and Brent) fell during the first four days of the week only to rally on Friday. Despite the sharp rise on Friday both oil prices fell on a weekly scale: WTI slipped by 0.91%; Brent oil, by 0.67%. As a result, the premium of Brent oil over WTI remained nearly unchanged; the premium ranged between $2.14 and $3.28. Based on the latest EIA weekly report, oil stockpiles rose by 0.75Mb. In the U.S, imports and production rose again while refinery inputs slipped during last week. Will oil resume their upward trend next week? This week, several reports may affect the oil market. These items include: Philly Fed index, retail sales, German economic sentiment, and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for August 12th to August 16th:
Oil Prices – August
During the previous week, crude oil price (WTI) fell by 0.91% and reached by Friday $105.97/b; further, Brent oil also decreased by 0.67% to $108.22/b;
In the chart below are the developments in WTI and Brent oil prices in recent months (prices are normalized to January 31st). As seen in the chart herein, the oil remained nearly unchanged during August.
Premium of Brent over WTI – August
The difference between Brent and WTI spot oil didn’t change much last week as it ranged between $2.14 and $3.28 per barrel. Nonetheless, during the week, the premium rose by 11.94%.
Oil Stockpiles – Slightly Rose by 0.75Mb
The oil stockpiles slightly rose by 0.75 MB and reached 1,817.9 million barrels. The linear correlation between the changes in stockpiles has slightly weakened to -0.20: this correlation suggests that oil price, assuming all things equal, will decline next week.
Oil imports to the U.S increased again by 1.2% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.286) that suggests oil price may decline next week. Moreover, oil production increased; refinery inputs slipped again last week. In total, the rise in production and imports might loosen the U.S oil market.
The next weekly report will come out on Wednesday, August 14thand will refer to the week ending on August 9th.
OPEC Monthly Report
According to the recent OPEC Report, OPEC’s oil production slipped again by 97.3 thousand bbl/d to reach 30,308 thousand in July – its lowest level in recent months. This news suggests the oil supply has slightly declined during last month, which could have tightened the oil market. If this trend will persist, it could further pressure up the price of oil.
IEA Monthly Report
Based on the recent monthly update, the global oil supply rose in July by 575 thousand bbl/d to reach 91.85 million bbl/d mainly due to rise in non-OPEC countries’ production. The global demand was little changed in 2013 but for 2014 the projection are for a sharp rise of 1.1 mb/d .
The sharp rise in expected demand for oil in 2014 may have pulled up the price of oil. Global refinery crude demand spiked in June and may have also jumped in July. OECD industry inventories increased by 11.9 mb in June.
Oil Related News for the Week
Tuesday – German ZEW economic sentiment: In June, the ZEW indicator for Germany decreased to 36.3 points; if Germany’s economic sentiment will keep falling, the Euro will plausibly weakened against other currencies including the US dollar;
Tuesday –U.S. Retail Sales Report: In the recent report regarding June, the retail sales rose again by 0.6% from the last month; gasoline stations sales also increased by 0.7% in June compared to May 2013; this report could signal the developments in U.S’s gasoline demand and thus may affect U.S oil prices;
Thursday – Philly Fed Manufacturing Index: This monthly survey estimates the growth of the US manufacturing sectors. In the recent survey regarding July, the growth rate rose again from +12.5 in June to +19.8 in July. If the index will continue to rise, it may positively oil prices (the previous Philly Fed review);
Oil Price Outlook and Analysis
From the supply side, the ongoing rally in production and imports could adversely affect oil price. Conversely, the moderate fall in refinery inputs may pull back up oil price. The U.S oil storage continue to buildup, which servers as another indication for a moderate rise in supply or a decline in demand, which could also suggest that the U.S. oil market has slightly loosened. From the demand side, the upcoming reports including U.S retail sales, Philly Fed survey and German economic sentiment could signal the direction of the demand for oil in U.S and Europe. If these reports will positively surprise the current market expectations and surpass the current expectations, they could positively affect oil prices. Finally, the premium of Brent over WTI is likely to remain under $5.
The bottom line, on a weekly scale I guess oil price might resume its downward trend and slowly decline.
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