Oil Weekly Outlook for July 29 – August 2

The price of oil (WTI and Brent) changed direction and fell last week: WTI declined by 2.94%; Brent oil, by 0.83%. As a result, the premium of Brent oil over WTI expanded; the premium ranged between $1.2and $2.5. According to the last EIA weekly report, oil stockpiles declined by 2.2Mb. In the U.S, refinery inputs and production increased again while imports declined during last week. Will oil bounce back next week? This week, several reports may affect the oil market. These items include: China’s manufacturing PMI, U.S durable goods, and EIA oil weekly update.

Here is a weekly outlook and analysis for the crude oil market for July 29th to August 2nd:

Oil Prices – July

During the previous week, crude oil price (WTI) fell by 2.94% and reached by Friday $104.70/b; further, Brent oil also slipped by 0.83% to $107.17/b;

In the chart below are the developments in WTI and Brent oil prices in recent months (prices are normalized to January 31st). As seen in the chart herein, the oil has traded mostly during July.

oil forecast Brent and WTI  July 29- August 2 2013Premium of Brent over WTI – July

The difference between Brent and WTI spot oil bounced back and rose last week as it ranged between $1.2 and $2.5 per barrel. During July, the premium tumbled down by 96.43%. This is the lowest gap recorded between Brent and WTI since November 2010.

Difference between Brent and WTI  July 29- August 2  2013

Oil Stockpiles – Declined by 2.2Mb

The oil stockpiles declined by 2.2 MB and reached 1,815.6 million barrels. The linear correlation between the changes in stockpiles has slightly strengthened to -0.211: this correlation suggests that oil price, assuming all things equal, will bounce back next week.

u.s. ending stocks oil  2013  July 29- August 2

Oil imports to the U.S decreased again by 0.9% last week. The weekly developments in oil imports have a mid-strong negative correlation (-0.287) that pull down oil price next week. Conversely, oil production and refinery inputs increased again last week, which could pressure up oil price. In other words, the rise in production and refinery inputs might loosen the U.S oil market.

The next weekly report will come out on Wednesday, July 31stand will refer to the week ending on July 26th.

Oil Related News for the Week

Wednesday – First U.S GDP 2Q 2013: In the latest estimate the U.S GDP rose by 1.8% in the first quarter of 2013 (it was revised down). If the growth rate from first quarter of 2013 to the second quarter will further rise, this could pull up crude oil price;

Thursday – China Manufacturing PMI: Back in June 2013 the Manufacturing PMI slipped to 50.1 – i.e. China’s manufacturing sectors is still expanding but at a slightly slower pace; the recent flash PMI report was well below the 50 point market. If in the upcoming report the PMI will also fall below the 50 point mark, it could signal a decline in China’s economic progress. If the index will decrease, this may also adversely affect oil price;

Friday – U.S. Non-Farm Payroll Report: in the latest employment report for June 2013, the labor market sharply rose again: the number of non-farm payroll employment rose by 195k; if in the upcoming report the employment will grow again by over 150 thousand (in additional jobs), this may pressure up the prices of oil;

Oil Price Outlook and Analysis

From the supply side, the recent rise in production and refinery inputs could further pull back oil price. Conversely, the ongoing fall in imports may pressure up oil price. The recent drop in U.S storage is another indication for a moderate decrease in supply or a moderate increase in demand, which could also suggest that the U.S. oil market has slightly tightening. From the demand side, the upcoming reports including U.S GDP, China’s manufacturing PMI and U.S non-farm payroll report could signal the future direction of the demand for oil in U.S and China. If these reports will positively surprise the current market expectations and surpass the current forecasts, they could pull up the price of oil. The situation in Egypt is likely to keep the volatility of oil prices high. If the situation will cool down, oil prices might further pull back. Finally, the little gap between Brent and WTI in recent weeks may imply the tightening of the U.S oil market compared to the Europe nearly eliminated this premium. The low premium is likely to remain at its current range of below $5.   

The bottom line, on a weekly scale I guess oil price will resume its upward trend.

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