Oil Weekly Outlook For February 18-22

During last week, crude oil price (WTI) remained virtually unchanged while Brent oil was traded down: WTI oil edged up by 0.15%; Brent oil declined by 1.04%. As a result, the gap between the Brent oil and WTI contracted; the difference between Brent and WTI ranged between $21 and $22. According to previous EIA report, oil stockpiles decreased by 7.2 MB. OPEC’s oil production remained stable last month. Will oil rally next week? During the upcoming week, several publications may affect the oil market. These items include: Philly Fed index, EU manufacturing PMI and EIA oil weekly update.

Here is a weekly projection and analysis for the crude oil market for February 18th to February 22nd:

Oil Prices – February

During the previous week, crude oil price (WTI) inched up by 0.15% and reached by Friday $95.86/b; Brent oil, on the other hand, fell by 1.04% to $117.66/b; during February, WTI oil declined by 1.67%; Brent oil rose by 1.83%.

In the chart below are the developments in WTI and Brent oil prices during January-February (rates are normalized to December 30th). As seen below, the prices of oil have had an unclear trend in recent weeks.

oil forecast Brent and WTI spot rates February 18-22 2013

Premium of Brent over WTI – February

The difference between Brent oil and WTI spot oil has further widened during last week as it ranged between $19 and $23 per barrel. During February the premium increased by 28.32%.

Difference between Brent and WTI  February 18-22  2013

Oil Stockpiles – Decreased by 7.2 Mb

The oil stockpiles decreased by 7.2 MB and reached 1,791.9 million barrels. The linear correlation between the changes in stockpiles is still mid-strong and negative: this correlation suggests that the rate of oil, assuming all things equal, will rally next week. The upcoming report will be published on Wednesday, February 20th and will refer to the week ending on February 15th.

OPEC Production Remained Stable

According to the recent OPEC report, OPEC’s oil production edged down to 30,320 thousand bbl/d in January compared with 30,341 thousand bbl/d in December. This means the total OPEC oil supply inched down by 21.2 thousand during last month. Saudi Arabia’s oil production declined by 420 thousand bbl/d to 9,211 thousand bbl/d. Iraq’s oil production also slightly declined by 75.8 thousand bbl/d to reach 3,011 thousand bbl/d. The current production of Libya is still nearly 5% below its average oil production of 1,600 thousand bbl/d back in 2010. Nigeria’s oil production slightly decreased to 2,017 thousand bbl/d.  Iran’s oil production remained stable at 2,691 thousand, which is still its lowest production level in latest years.

IEA Monthly Report

Based on the latest IEA monthly update, the non-OPEC countries’ oil production fell by 0.2 mb/d during January 2013. The global oil demand projection is expected to rise by 0.84 mbbl/d reach to 90.7 mbbl/d in 2013 compared with 2012’s demand. This estimate is higher than the projected oil demand in OPEC’s report.

In the report, the OECD industry oil inventories decreased by 22 million bbl to 2,688 million bbl in December 2012. The oil stockpiles are slightly below the average recorded during the month; this means that the oil market is keep tightening in OECD countries; this was probably among the reasons for the sharp rise in premium of Brent oil over WTI in recent weeks.

Main Oil Related News Items for the upcoming week

Thursday – Flash German, French and Euro Zone Manufacturing PMI: In the previous report regarding January 2013, the German PMI rose to 48.8 i.e. the manufacturing conditions are still contracting at a slightly slower rate. This report serves as an indicator to the economic developments of the Euro Area’s leading economies’ manufacturing conditions;

Thursday – Philly Fed Manufacturing Index: This monthly survey presents an estimate for the progress of the US manufacturing conditions. In the previous January survey, the growth rate fell from +8.1 in December to -5.8 in January

Foreign Exchange and Oil Prices Relation – February

The EURO/USD inched down last week by 0.04%. The AUD/USD rose by 0.88% during last week. This mixed trend may have also affected the unclear trend in oil prices during last week. The correlations among these currencies pairs (Euro/USD) and oil prices remained strong and robust. E.g. the linear correlation between the price of oil and EURO /USD was 0.53 during January- February. If the U.S dollar will change course and depreciate against the “risk currencies”, it may positively affect oil prices.

Oil Prices Outlook and Analysis

Following the little movement in the price of crude oil last week, oil prices might start to come up during next week. The difference between Brent and WTI oil may remain around the $20 to $22 range on account of the decline in storage in Europe. Oil stockpiles decreased last week, which could pull up oil prices in the U.S this week. The upcoming reports on U.S Philly fed and EU manufacturing PMI (flash estimate) could affect the direction of oil from the projected demand side; if these reports will show growth in economic activities in these countries, they could positively affect oil prices. Finally, if major currencies such as the EURO will start to appreciate against the U.S. dollar, they may positively affect oil prices. The bottom line, I guess the prices of oil will rise on a weekly scale.

My guess is that WTI oil will trade between $96 and $100 and Brent between $115 and $120 during the week.

For further reading: