Oil prices (WTI and Brent) continued their recovery and rose during the week: WTI rose by 1.41%; Brent oil, by 2.73%. As a result, the premium of Brent oil over WTI slightly expanded; the premium ranged between $2.86 and $3.78. According to the latest EIA weekly report, oil stockpiles fell by 1.8Mb. In the U.S, imports and production increased again while refinery inputs fell during last week. Will oil continue its upward trend next week? This week, several reports may affect the oil market. These items include: China’s manufacturing PMI, U.S housing data, and EIA oil weekly report.
Here is a weekly projection and analysis for the crude oil market for August 19th to August 23rd:
Oil Prices – August
During last week, crude oil price (WTI) increased by 1.41% and reached by Friday $107.46/b; further, Brent oil also rose by 2.73% to $111.17/b;
In the chart below are the changes in WTI and Brent oil prices in the past several months (prices are normalized to January 31st). As seen in the chart herein, the oil slightly rose during the month.
Premium of Brent over WTI – August
The difference between Brent and WTI oil rose last week as it ranged between $2.86 and $3.78 per barrel. Moreover, during the week, the premium rose by 64.89%.
Oil Stockpiles – Fell by 1.8Mb
The oil stockpiles declined by 1.8 MB and reached 1,816.1 million barrels. The linear correlation between the shifts in stockpiles has remained stable at -0.206: this correlation suggests that oil price, assuming all things equal, will rise next week.
Oil imports to the U.S rose again by 0.7% last week. The weekly shifts in oil imports have a mid-strong negative correlation (-0.296) that implies oil price may decline next week. Moreover, oil production also rose; refinery inputs fell by 1% last week. In total, the rise in production and imports might keep loosening the U.S oil market.
The next weekly update will be published on Wednesday, August 21stand will pertain to the week ending on August 16th.
Egypt Riots and Oil
The escalation in Egypt could be among the factors contributing to the rising oil price. The main issue will continue to be around the potential blockage of the Suez Canal, in which nearly 3.8 million barrels per day transport through it. Keep in mind, in 2011 Arab spring that also erupted in Egypt, the Suez Canal remained open. Therefore, the current turmoil in Egypt are less likely to affect the shipment of oil via the Suez Canal in the near future.
Oil Related News for the Week
Wednesday – U.S. Existing Home Sales: In the recent report regarding June 2013 the number of homes sold slipped to a seasonally adjusted annual rate of 5.08 million houses; if this trend will persist, it might affect the U.S dollar;
Thursday – China flash Manufacturing PMI: In the latest HSBC Manufacturing PMI survey referring to July 2013 the Manufacturing PMI fell again to 47.7; this index indicates China’s manufacturing sectors are contracting at a slightly faster rate than in June;
Thursday – Flash German Manufacturing PMI: In the previous monthly report regarding July 2013, the German PMI rose to 50.3 i.e. the manufacturing conditions are expanding after they had contracted a month earlier. This report serves as an indicator to the economic development of the Euro Area’s leading economies’ manufacturing conditions;
Oil Price Outlook and Breakdown
From the supply side, the rise in production and imports could curb down the rally of oil price. Conversely, the decline in refinery inputs may positively affect oil price. The U.S oil storage changed direction and fell; this serves as another indication for a moderate fall in supply or a rise in demand, which could suggest that the U.S. oil market has slightly tightened. The escalation in the Middle East mainly in Egypt could keep the price of oil from falling. From the demand side, the upcoming reports including U.S housing data, China’s manufacturing PMI and Germany’s manufacturing PMI could signal the potential growth in demand for oil in U.S, China and Europe. If these reports will positively surprise the current market expectations, they could positively affect the price of oil. Finally, despite the slight rise in the premium of Brent over WTI, it is likely to remain under $5.
The bottom line, on a weekly scale I guess oil price might remain at its current level and won’t change by much from last week.
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