The prices of crude oil (WTI and Brent) fell during last week: WTI declined by 4.25%; Brent oil slipped by 3.24%. As a result, the gap between the Brent oil and WTI slightly expanded; the difference between Brent and WTI ranged between $6 and $7. Based on the latest EIA report, oil stockpiles rose by 6.7Mb. Moreover, refinery inputs and imports rose while production slipped during last week. Last week’s Fed decision and the latest developments in China may have contributed to the sharp fall of oil prices last week. Will oil continue to fall next week? In the upcoming week, several publications and decisions may affect the oil market. These items include: U.S GDP, Canada’s GDP, German retail sales, and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for June 24th to June 28th:
Oil Prices – June
During the previous week, crude oil price (WTI) rose by 1.9% and reached by Friday $97.85/b; conversely, Brent oil slipped by 0.26% to $104.29/b; during the month, WTI oil rose by 6.39%; Brent oil, by 3.88%.
In the chart below are the developments in WTI and Brent oil rate in the past few months (prices are normalized to January 31st). As seen in the chart herein, the oil prices have rallied in recent weeks.
The difference between Brent oil and WTI spot oil slightly fell again as it ranged between $6 and $7 per barrel. During June, the premium sharply fell by 23.52%.
The oil stockpiles rose again by 6.7 MB and reached 1,830.6 million barrels. The linear correlation between the changes in stockpiles has slightly weakened to -0.177: this correlation implies that oil price, assuming all things equal, will fall next week.
The chart below shows the changed in price of oil and stockpiles in recent years.
Oil imports to the U.S increased by 1% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.298) that implies oil prices may decline again next week. Refinery inputs remained slightly rose last week while oil production declined. In other words, the rise in imports and refinery inputs might suggest the oil market has slightly loosened in the U.S.
The next weekly update will come out on Wednesday, June 26th and will refer to the week ending on June 21st.
Main Oil Related News Items for the upcoming week
Wednesday – Third Estimate of U.S GDP for 1Q 2013: This will be the third and final estimate of U.S’s first quarter 2013 real GDP growth. In the first estimate the U.S GDP rose by 2.5% in the first quarter; in the fourth quarter the GDP grew by 0.4%. If there will be a sharp change in the growth rate from second to the third Q1 estimate, this could affect not only the US dollar but also commodities rates;
Friday – Canada’s GDP by Industry: In the recent update regarding March 2013, the real gross domestic product slightly rose by 0.2%. This report may affect the Canadian dollar, which is strongly correlated with oil prices;
Foreign Exchange and Oil Prices Correlations – June
During last week, the EURO/USD fell by 1.67%; moreover, the AUD/USD also fell by 3.67%. 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 0.29 during recent weeks. Nonetheless, if the U.S dollar will continue to appreciate against “risk currencies”, this could pull down oil prices.
Oil Prices Outlook and Analysis
From the supply side, the increase in refinery inputs and imports in the U.S may pressure down oil prices. Moreover, the ongoing storage buildup is another indication for an increase in supply or a drop in demand, which could also suggest that the U.S. oil market has loosened up. Last week’s FOMC press conference and China’s recent developments may have contributed to the drop in oil prices. The slow signs of recovery in the U.S compared to Europe will plausibly keep contracting the gap between WTI and Brent. This trend is likely to persist in the coming weeks. From the demand side, the upcoming reports regarding Canada and U.S’s GDP might provide an update to the expected changes from demand sides; if the reports will show growth (higher than anticipated), they could pull up the prices of oil. On a sentimental level, the sharp drop in oil prices last week might lead to a correction this week. Finally, if major currencies such as the EURO and Aussie will continue to fall against the U.S. dollar, they may adversely affect oil prices.
The bottom line, oil price might resume its downward trend.
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