The prices of oil (WTI and Brent) continued their rally during last week: WTI increased by 6.9%; Brent oil also increased by 5.44%. As a result, the gap between the Brent oil and WTI moderately contacted; the gap between Brent and WTI ranged between $4 and $5. Based on the latest EIA weekly update, oil stockpiles declined by 14.6Mb. Conversely, refinery inputs and imports rose while production edged down during last week. Will oil continue to trade up next week? In the upcoming week, several reports may affect the oil market. These items include: minutes of FOMC meeting, OPEC and IEA oil reports, the developments in the Middle East, and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for July 8th to July 12th:
Oil Prices – July
During the previous week, crude oil price (WTI) rose by 6.9% and reached by Friday $103.22/b; further, Brent oil rose by 5.44% to $107.72/b;
In the chart below are the developments in WTI and Brent oil rate in recent months (prices are normalized to January 31st). As seen in the chart herein, the oil prices have rallied in the past couple of weeks.
The difference between Brent oil and WTI spot oil contracted again as it ranged between $4 and $5 per barrel. During July, the premium sharply fell by 19.64%.
The oil stockpiles declined by 14.6 MB and reached 1,825.3 million barrels. The linear correlation between the changes in stockpiles has slightly weakened to -0.175: this relation suggests that oil price, assuming all things equal, will further rise next week.
The chart below presents the developments in price of oil and stockpiles in recent years.
Oil imports to the U.S increased again by 0.4% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.298) that implies oil prices may decline next week. Refinery inputs also increased last week while oil production edged down. In other words, the increase in imports and refinery inputs might loosen the U.S oil market and thus curb the recent rally of oil prices.
The next weekly report will come out on Wednesday, July 10th and will refer to the week ending on July 5th.
Main Oil Related News Items for this week
The escalation in the Egypt could be among the factors pulling up the price of oil on account of the concern regarding the potential blockage of the Suez Canal, in which nearly 3.8 million barrels per day transport through it. Keep in mind, in 2011 Arab spring that also erupted in Egypt, the Suez Canal remained open. Therefore, the current developments in Egypt are less likely to affect the shipment of oil via the Suez Canal.
Monday – German Industrial Production: The upcoming report will refer to June 2013. In the previous update, the industrial production rose by 1.8% during May;
Wednesday – Minutes of the last FOMC Meeting: Following the last FOMC meeting, in which the Fed left its monetary policy unchanged but Bernanke heavily hinted that the Fed may start taper QE3 by the end of the year; the upcoming minutes could shed some additional light behind the future plans of the Fed. If the minutes will further suggest the Fed is considering easing down the current asset purchase program in the coming months, this could pressure down commodities prices;
OPEC Monthly Report
OPEC’s upcoming report will show of any changes in crude oil and natural gas’s supply and demand worldwide; the report will also show the changes in OPEC countries’ oil production quota during June 2013; this news may affect oil prices.
The next report will be published on Wednesday, July 10th.
IEA Monthly Report
This upcoming monthly report will present an updated (for August) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013.
The next report will be published on Thursday, July 11th.
Foreign Exchange and Oil Prices Correlations – July
During last week, the EURO/USD fell again by 1.39%; moreover, the AUD/USD also slipped by 0.78%. The correlations among these currencies pairs (AUD /USD) and oil prices contracted. E.g. the linear correlation between the price of oil and AUD /USD was 0.24 during recent weeks. The effect of the forex market on oil price seems to have diminished in recent weeks.
Oil Prices Outlook and Analysis
From the supply side, the slow fall in production could slowly pressure down oil price. On the other hand, the rise in refinery inputs and imports may pull down oil prices. The recent fall in storage is another indication for a drop in supply or a rise in demand, which could also suggest that the U.S. oil market has tightening up. From the demand side, the ongoing progress of the U.S economy, including the slightly better than expected employment report, may positively affect oil prices. The growing demand in U.S compared to Europe may keep shirking the gap between WTI and Brent. The minutes of the FOMC meeting could affect forex and commodities markets if the report will offer some insight regarding the future steps of the Fed on QE3. Finally, if the situation in Egypt will cool down, we might see a correction to oil prices and they will sharply fall.
The bottom line, oil price might further rally.
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