During last week, oil prices (WTI & Brent) changed course and slightly increased: WTI rose by 1.4%; Brent oil, by 0.41%. As a result, the gap between the Brent oil and WTI shrunk again; the difference between Brent and WTI ranged between $18 and $20. According to the recent EIA report, oil stockpiles declined again by 2.4 MB. Will oil change course and fall next week? During the upcoming week, several publications may affect the oil market. These items include: OPEC monthly report, IE monthly update, U.S retail sales, industrial production, CPI and EIA oil weekly report.
Here is a weekly outlook and analysis for the crude oil market for March 11th to March 15th:
Oil Prices – March
During the previous week, crude oil price (WTI) slightly rose by 1.4% and reached by Friday $91.95/b; Brent oil also increased by 0.41% to $110.85/b; during the month, WTI oil inched down by 0.11%; Brent oil, by 0.48%.
In the chart below are the developments in WTI and Brent oil prices during February-March (rates are normalized to January 31st). As seen below, the prices of oil have had a moderate decline in recent weeks.
Premium of Brent over WTI – March
The gap between Brent oil and WTI spot oil has slightly contracted during last week as it ranged between $18 and $20 per barrel. During the month, the premium fell by 2.22%.
Oil Stockpiles – Declined by 2.4 Mb
The oil stockpiles declined again by 2.4 MB and reached 1,782.3 million barrels. The linear correlation between the shifts in stockpiles remained mid-strong and negative: this correlation implies that the price of oil, assuming all things equal, will moderately rise next week.
Moreover, the oil imports to the U.S fell by 0.8% last week. The weekly changes in oil imports have a mid-strong negative relation (0.34) that suggests oil prices will rise next week.
The next weekly update will be published on Wednesday, March 13th and will refer to the week ending on March 8th.
OPEC Monthly Report
The OPEC report will present the main changes in crude oil and natural gas’s supply and demand worldwide; the report will also refer to the shifts in the production of OPEC countries during February 2013; this news may affect oil prices (See here a summary of the previous report). If the report will show a sharp drop in production, it could pressure up oil prices.
The next report will be published on Tuesday, March 12th.
IEA Monthly Report
This upcoming monthly report will show an updated (for February) outlook and analysis for the global crude oil and natural gas market for 2013 and 2014. If the report will show a rise in expected demand for oil on a global scale, oil prices are likely to rally.
The next report will be published on Wednesday, March 13th.
Main Oil Related News Items for the upcoming week
Wednesday –U.S. Retail Sales Report: in the recent report regarding January, the retail sales edged up by 0.1% from the previous month; gasoline stations sales rose by 1.4% in January; this report could signal the developments in U.S’s gasoline demand and thus may affect oil prices;
Friday –U.S Core Consumer Price Index: According to the U.S Bureau of Labor statistics during January, the CPI remained flat (M-o-M); the core CPI rose by 0.3%; the core index rose over the past twelve months by 1.9%.
Friday – American Industrial Production: The upcoming report will refer to February 2013. In the previous monthly report, the index slipped by 0.1% during January;
Foreign Exchange and Oil Prices Correlations – March
During last week, the EURO/USD slipped by 0.13%. On the other hand, the AUD/USD slightly increased by 0.32% during last week. The correlations among these currencies pairs (Euro/USD) and oil prices remained strong and robust. E.g. the linear correlation between the rate of oil and EURO /USD was 0.55 during February-March. If the U.S dollar will continue to strengthen against the “risk currencies”, this may pull down oil prices.
Oil Prices Outlook and Analysis
Following the moderate growth in the prices of oil last week, oil prices might continue to slowly grow. From the supply side, the decline in oil imports to the U.S is contributing to the rise in oil prices. If the OPEC and IEA reports will show the production in OPEC and non-OPEC countries remained stable, then the price of oil might slightly decline. From the demand side, the moderate growth in the U.S and Chinese economies may have contributed to the expected drop in growth in demand for oil. The upcoming reports regarding the U.S economy and the IEA projection for the global demand for oil might shed some light on the expected shifts from demand side. The gap between Brent and WTI oil ranged between $18 and $20 and might continue to slowly contract in the coming days as the US economy is progressing (WTI oil) while the EU economy (Brent oil) is slowing down. Oil stockpiles declined again last week, which could pull up oil prices in the U.S this week. On the other hand, several factors worth mentioning that could pull down oil prices: if the EU economy will keep showing little progress; the upcoming EIA, IEA, OPEC reports could show unexpected changes in supply and demand. Finally, if major currencies such as the EURO will continue to fall against the U.S. dollar, they may also curb the rally of oil prices. The bottom line, I guess the prices of oil will slightly rise on a weekly scale.
My guess is that WTI oil will range between $90 and $94 and Brent between $109 and $112 during the week.
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