Crude Oil Prices – Weekly Outlook July 23-27

Crude oil prices continued to rally during most of last week (until the last day of the week). The recent news from the U.S showed a mixed signal as to developments in the U.S. The news of the rise in the Philly Fed index and housing starts may have contributed to the rally in oil prices. During the week, WTI oil increased by 4.98%; Brent oil, much like WTI, finished the week 4.59% higher than the previous week.

During the upcoming week there are several reports that may affect oil market including the U.S GDP for Q2 2012, core durable goods, manufacturing PMI of Euro Zone, China and U.S and EIA oil report.  

Here is a weekly outlook and analysis of the crude oil market for July 23rd to July 27th:

Oil Prices –July

By Friday, July 20th crude oil price (WTI) declined by 1.32% and reached $91.44/b; Brent oil also decreased by 1.39% to $107.33/b; during last week, WTI spot oil increased by 4.98% and Brent oil by 4.59%.

In the chart below are the shifts in WTI and Brent oil prices during the month (prices are normalized to June 29th). It show how both oil prices have picked up in recent weeks.

oil forecast Brent and WTI spot rates  2012 23-27 July

Premium of Brent over WTI – July

The difference between Brent oil and WTI spot oil also increased to $15-$16 per barrel range. During July the premium rose by 31.98%.

Difference between Brent and WTI  23-27 July 2012

Oil Stockpiles –Rose by 1.4Mb

U.S. crude oil stockpiles rose last week by 1.4 million bl. For the week ending on July 13th oil stockpiles reached 1,798 million barrels.

The upcoming report will be published on Wednesday, July 25th and will refer to the week ending on July 20th.

Main Oil Related News Items for the upcoming week

Monday – China flash Manufacturing PMI: according to the HSBC Manufacturing PMI update for June the Manufacturing PMI slipped to 48.1; this index indicates the economic progress of China’s manufacturing sectors; if this negative growth will continue, this may also adversely affect oil prices, unless China will act to stimulate its economy;

Tuesday – Flash Euro Area Manufacturing PMI (July 2012): In the previous report regarding June 2012, the Euro Zone Manufacturing PMI edge down to 44.8, i.e another contraction. This report will provide an indicator to the economic progress of the Euro zone’s manufacturing conditions;

Wednesday – U.S. Flash Manufacturing PMI: During June 2012 the ISM index declined to 49.7%, which means the manufacturing is contracting; this index might affect crude oil markets;

Thursday – U.S Core Durable Goods: This report may indirectly present the changes in U.S. demand for commodities including crude oil. As of May 2012, new orders of manufactured durable goods rose by $2.7 billion to $217.4 billion;

Friday – First U.S GDP 2Q 2012 Estimate: In the recent estimate the U.S GDP during the first quarter expanded by 1.9%. If there will be a sharp shift in the growth rate from Q1 to Q2 this could affect not only the US dollar but also commodities prices.

Forex and Crude Oil Prices –July

The EURO/USD exchange rate declined last week by 0.74%; on the other hand, the AUD/USD increased by 1.49%. There are still positive relations among these currencies pairs (EURO/USD, AUD/USD) and crude oil rate. E.g. the linear correlation between the oil price and Euro/USD is 0.84 during July. If the U.S dollar will further appreciate against the EURO and Aussie dollar, it may adversely affect oil prices.

Oil Prices Outlook and Analysis

The Brent premium over WTI oil increased during last week and may continue at this path as the oil market in the U.S gets looser than in the market in Europe. If the upcoming U.S reports (core durable goods, GDP, manufacturing PMI) will continue to show weakens it may pull down oil prices. Since we are in the driving season, oil prices are likely to remain high.  If the Chinese and European manufacturing PMI will further decline it could also adversely affect oil rates. From the supply side, the tensions between U.S and Iran could pull down the oil production rate of Iran and pressure the oil market from the supply side. Finally, if major currencies including EURO will continue to decline against the U.S. dollar, then they might pull down oil prices.

I speculate during the upcoming week, WTI oil price will trade between $87 and $93 and Brent between $102 and $109.

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