Crude oil prices didn’t do much during last week after they had increased during most of the month. Further, the difference between Brent and WTI also didn’t change much and slightly shrunk in recent days. During last week, WTI oil edged down by 0.13%; Brent oil, by 0.48%. The recent publications of the minutes of the FOMC meeting and the rise in new home sales didn’t seem to affect much the oil market.
During the upcoming week there are several reports that may affect the crude oil market such as: Bernanke’s speech, U.S GDP for Q2 2012, China’s manufacturing PMI. There are weather conditions that could affect oil supply: Tropical storm Isaac caused a shut down in production in the Gulf of Mexico; Typhoon Bolaven forced oil refinery shutdown in Okinawa, Japan. If these dire conditions will continue it could keep oil prices rising.
Here is a weekly outlook and analysis of the crude oil market for August 27th to 31st:
Oil Prices –August
During last week, crude oil price (WTI) slipped by 0.13% and reached $95.85/b; Brent oil also decreased by 0.48% to $115.14/b; during August, WTI spot oil increased by 8.85%; Brent oil, by 8.69%.
In the chart below are the shifts in WTI and Brent oil prices during the month (prices are normalized to July 31st). It shows that both oil prices have had an upward trend during most of the month.
The difference between Brent oil and WTI spot oil remained at the $19-$20 per barrel range. During August the premium rose by 7.95%.
The oil stockpiles decreased again during the previous week by 3 M bl to reach 1,792.7 million barrels. The upcoming report will be published on Wednesday, August 29th and will pertain to the week ending on August 24th.
Main Oil Related News Items for the upcoming week
Monday – German Business Climate Survey: In the recent report for July 2012, the business climate index declined from 105.3 in June to 103.3 in July;
Wednesday – Second Estimate U.S GDP 2Q: In the preliminary estimate, the U.S GDP for Q2 expanded by 1.5%. This shows a fall in the growth rate for the US’s GDP. If there will be a sharp shift in the growth rate from first to second estimate, this could affect not only the US dollar but also commodities;
Thursday – German Retail Sales: In July 2012, retail sales declined by 0.1%; if this report will remain negative then it might weaken the Euro;
Friday – Canada’s GDP by Industry: In the May report, the real gross domestic product slipped by 0.1%;
Friday – Bernanke’s Speech: Following last week’s publication of the minutes of the FOMC meeting and the renewed expectations for another FOMC monetary intervention, many will look towards Bernanke’s speech that could hint of the Fed’s future steps;
Friday – U.S Factory Orders: in the previous report factory orders declined by 0.5%; this report will offer some insight to the growth of the U.S economy and could affect the path of the U.S dollar;
Saturday – China Manufacturing PMI: in July 2012 the Manufacturing PMI edged down to 50.1; this index indicates the developments in China’s manufacturing sectors; if this downward trend will continue, this may adversely affect commodities;
Foreign Exchange and Oil Prices Relation – August
The EURO/USD currency pair increased last week by 1.35%; on the other hand, the AUD/USD slipped by 0.38%. There are still positive correlation among these currencies pairs (EURO/USD, AUD/USD) and crude oil price. E.g. the linear correlation between the oil price and Euro/USD reached 0.55 during July/August. If the U.S dollar will continue to depreciate against the EURO and Aussie dollar, it may pull up oil prices.
Oil Prices Outlook and Analysis
The difference between Brent and WTI oil didn’t change much and slightly dwindled during last week but may resume its expansion during the upcoming week. The tensions in the Middle East may keep oil prices high and the gap between Brent and WTI wide. The upcoming U.S reports including GDP and factory orders could also affect oil rates. Further, the upcoming Chinese manufacturing PMI could pressure down crude oil prices at the start of next week if the PMI will continue to decline. Finally, if major currencies including EURO and Aussie dollar will trade up against the U.S. dollar, then they might also pressure up oil prices.
I speculate during the upcoming week, WTI oil will trade between $95 and $101 and Brent between $113 and $119.
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