Oil Weekly Outlook For December 10-14

During last week, crude oil prices moved with an unclear trend. According to the recent EIA report, the oil stockpiles rose by 5.9MB. During last week, WTI oil fell by 3.35%; Brent oil, by 3.8%. As a result, the gap between the Brent oil and WTI narrowed; further, the difference between Brent and WTI slipped to the range between $20 and $22. Will oil continue to dwindle next week? During the forthcoming week several publications and events may affect the oil market. This week OPEC’s Summit will be held. These items include: U.S retail sales, FOMC meeting, China’s manufacturing PMI, IEA monthly update, OPEC monthly report and EIA oil weekly update.

Here is a weekly projection and analysis for the crude oil market for December 10th to 14th:

Oil Prices – December

During last week, crude oil price (WTI) declined by 3.35% and reached by Friday $85.93/b; Brent oil also decreased by 3.78% to $107.02/b; during November, WTI oil rose by 3.1%; Brent oil, by 2.33%.

In the chart below are the developments in WTI and Brent oil prices during recent weeks (rates are normalized to October 31st). As seen, the prices of oil had a sharp downward trend during last week.

oil forecast Brent and WTI spot rates  2012  December 10-14Premium of Brent over WTI – December

The difference between Brent oil and WTI spot oil narrowed during the week to the range between $20 and $22 per barrel. During the month the premium fell by 5.5%.

Difference between Brent and WTI December 10-14 2012Oil Stockpiles – Increased by 5.9 Mb

The oil stockpiles rose by 5.9 MB and reached 1,787.5 million barrels. The linear correlation between the shifts in stockpiles tends to be negative: this correlation implies that the price of oil, assuming all things equal, will slightly fall next week. The upcoming report will come out on Wednesday, December 12th and will refer to the week ending on December 7th.

OPEC Monthly Report & Summit

OPEC members will convene in Vienna, Austria and decide on OPEC’s output quota for 2013. Currently the quota is set at 30 million bll/day. If OPEC will decide to lower the quota, this could pressure up oil prices. The summit will talk place on December 12th.

The OPEC report will show the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also pertain to the shifts in the production of OPEC countries during November 2012; this news may affect oil prices (See here a summary of the previous report).

The next report will be published on Tuesday, December 11th.

IEA Monthly Report

This upcoming monthly report will present an updated (for November) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013.

The next report will be published on Wednesday, December 12th.

Main Oil Related News Items for the upcoming week

Tuesday – FOMC Meeting: in September’s FOMC meeting, the FOMC announced of the launch of QE3. Since then the FOMC didn’t update its monetary policy. In light of the fiscal cliff, the low expectations of Congress reaching an agreement about the multi budget cuts, and the slow progress of the U.S economy, the Fed might decide to expand its current QE3 and include the purchase of other securities and not just mortgage backed securities. Nonetheless, I guess that even if the FOMC won’t announce of additional monetary steps, but will allude to the fact in the near future, this news is likely to pull up commodities;

Thursday –U.S. Retail Sales Report: in the recent report regarding October, the retail sales declined by 0.3% from the previous month; gasoline stations sales rose by 1.4% in October compared to September; this report could signal the developments in U.S’s gasoline demand and thus may affect oil prices;

Thursday – China flash Manufacturing PMI: based on the HSBC Manufacturing PMI report regarding November 2012 the Manufacturing PMI rose to 50.4; this index indicates the changes in China’s manufacturing sectors growth rate; if the index will further rise;

Foreign Exchange and Oil Prices Relation – December

The EURO/USD fell last week by 0.45%. Conversely, the AUD/USD rose by 0.58% during last week. This mixed trend may have affected oil prices. Nonetheless, the correlations among these currencies pairs (Euro/USD) and oil prices are still positive and robust, even though the relation has weakened during last week. E.g. the linear correlation between the price of oil and EURO /USD was 0.38 during recent weeks. If the U.S dollar will depreciate against the EURO and AUD, it may pull up oil prices.

Oil Prices Outlook and Analysis

Following the recent fall of prices of oil during last week, oil prices might continue to dwindle during this week. There might be a correction at the beginning of the week and oil prices might start the week rising, but I think the general direction will continue to be downward. Moreover, the difference between Brent and WTI oil may further narrow to the range of $18-$21 during the week. Oil stockpiles rose last week, which could suggest oil prices in the U.S will fall this week. The upcoming reports on retails sales could affect the path of oil from the projected demand side; therefore if such reports will show growth, they could pull up the prices of oil. The upcoming FOMC meeting could affect commodities prices and pull them up if the Fed will decide to introduce additional stimulus. The upcoming OPEC report could pull down oil prices if the OPEC oil production will remain stable. If the IEA will revise down its projected demand for oil in 2012-2013, it could also pressure down oil prices.  Finally, if major currencies including EURO and Aussie dollar will appreciate against the U.S. dollar, they may also positively affect oil prices. The bottom line, I guess the prices of oil will dwindle on a weekly scale even thought they could start the week with a correction to last week’s fall.

I speculate during the week, WTI oil will trade between $82 and $87 and Brent between $104 and $109.

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