Oil price (WTI) decreased by 1.32% during last week. Conversely, the price of Brent oil edged up by 0.34%. As a result, the gap of Brent oil over WTI widened: The premium ranged between $13.30 and $14.73. Last week, the EIA’s weekly report showed a rise in oil’s stockpiles of 3 million barrels – first gain in eleven weeks. Will oil continue to fall? This week, several reports may affect oil prices. These items include: OPEC monthly update, China new loans, U.S Philly fed index, U.S retail sales, and EIA oil weekly update.
Here is a weekly forecast for the oil market for January 13th to 17th:
Oil Prices – January Overview
During last week, crude oil price (WTI) declined by 1.32% and reached by Friday $92.72/b; on the other hand, Brent oil inched up by 0.34% to $107.25/b;
In the chart below are the daily changes in WTI and Brent oil prices during the past several months (prices are normalized to January 31st). As seen below, Brent and WTI oil prices declined in the past month.
The difference between Brent and WTI oil rose last week as it ranged between $13.30 and $14.73 per barrel. During the week, the premium increased by $1.60 per barrel.
The oil stockpiles changed course and rose by 3 MB and reached 1,752.9 million barrels. The linear correlation between the shifts in stockpiles has remained stable at -0.198: this correlation suggests that oil price, assuming all things equal, may decline next week. But in order to better understand the fundamentals let’s examine the developments in supply and demand:
Supply: Oil imports spiked by 3.7% last week. Further, oil production inched up by 0.2%; the total supply increased by 1.9%;
Demand: Refinery inputs remained unchanged last week. In total, the demand was still higher than the supply. But due to no change in demand and rise in supply, the gap between supply and demand narrowed. This difference may drag down oil prices as the U.S oil market loosens.
The chart below shows the developments in the difference between supply and demand and the price of oil.
The next weekly update will be released on Wednesday, January 15thand will pertain to the week ending on January 10th.
OPEC Monthly Report
The OPEC report will present 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 December 2013; this news may affect oil prices).
The next report will be published on Wednesday, January 15th.
Oil Related News for the Week
Here are several news items that could influence oil investors:
Tuesday –EU Industrial Production: As of November, the production fell by 1.1%; this report may affect the Euro currency;
Tuesday –U.S. Retail Sales Report: This monthly report refers to December; in the last report regarding November, retail sales slightly rose by 0.7% (month-over-month); core retail sales rose by 0.4%; this report also shows the changes in U.S’s gasoline retail sales, which could suggest the developments in demand for gasoline;
Thursday – Philly Fed Manufacturing Index: This monthly survey estimates the growth of the US manufacturing sectors. In the previous survey regarding December, the growth rate slightly rose from +7 in November to +7 in December. If the index further declines, it may adversely affect oil price (the recent Philly Fed review);
Oil Forecast and Breakdown
From the supply side, the sharp rise in imports and moderate gain in production is likely to pressure down oil prices. In total, the supply expanded last week. From the demand side, refinery inputs remained flat. As a result, the storage rose for the first time in eleven weeks. Further, the gap between supply and demand has narrowed, albeit the demand remains higher than the supply; this could suggest the oil market has loosened. Looking forward, the upcoming reports regarding U.S and Europe could offer some additional insight regarding the developments in oil demand in these countries. The difference between Brent and WTI ranged between $13 and $14. The slightly looser oil market in the U.S is likely to widen the gap between WTI and Brent oil. On the other hand, if the US dollar continues to weaken, this could pull up oil prices.
The bottom line, on a weekly scale, I guess oil price may continue to fall and the gap between WTI and Brent further widen.
For further reading: