Oil Outlook for May 12-16

Oil price (WTI and Brent) didn’t do much during last week. WTI inched up by 0.2%; Brent oil slipped by 0.6%. As a result, the difference of Brent oil over WTI slightly contracted again: The premium ranged between $7.36 and $8.24. Last week, the EIA’s weekly updated showed another rise in oil’s stockpiles of 6.5 million barrels. Will oil heat up? This week, several reports may affect oil prices. These items include: OPEC, IEA monthly updates, Philly fed index, U.S and China’s industrial production, and EIA oil weekly report.

Here is a weekly outlook for the oil market for May 12th – May 16th:

Oil Prices – May Overview

During last week, crude oil price (WTI) slipped by 0.8% and reached by Friday $99.76/b; moreover, Brent oil declined by 0.9% to reach $108.59/b;

Premium of Brent over WTI – May

The difference between Brent and WTI oilslightly contracted again last week as it ranged between $7.36 and $8.24 per barrel. During the week, the premium decreased by $0.93 per barrel.

Oil Stockpiles, Demand and Supply

The oil stockpiles increased again by 6.5 MB and reached 1,776.9 million barrels. The linear correlation between the shifts in stockpiles has remained around -0.205: this correlation suggests that oil price, assuming all things equal, may fall next week. But in order to better examine the fundamentals let’s consider the changes in supply and demand:

Supply: Oil imports dropped by 1.4% during last week. Moreover, oil production rose again by 0.4%; the total supply decreased by 0.5%;

Demand: Refinery inputs increased by 0.9% last week. In total, even though the demand remained below the supply, the difference between supply and demand sharply contracted. This recent development may push back up oil prices as the U.S oil market has become slightly tighter than it was a week back. After all, the linear correlation between the weekly price of oil lagged by on period and the changes in the gap between supply and demand is mid-strong and negative at -0.279.

If U.S oil market continues to tighten, this could push up oil price.

The next weekly report will be released on Wednesday, May 14th and will refer to the week ending on May 9th.

OPEC Monthly Report

OPEC will present in its monthly report the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also pertain to the shifts in the production of OPEC countries; this news may affect oil.

The next report will be published on Monday, May 12th.

IEA Monthly Report

This upcoming monthly report will present an updated (for April) outlook and analysis for the global crude oil and natural gas market for 2013 and 2014.

The next report will be published on Thursday, May 15th.

Oil Related News for the Week

Here are several news items that could affect the direction of oil prices:

Tuesday – China’s Industrial Production:According to the recent monthly update, China industrial production rose to an annual rate of 8.8%; if the growth rate rise again, it may suggest China’s economy is progressing faster;

Thursday –U.S Industrial Production: This report will show the monthly changes in the U.S industrial production during April; as of March, the production rose by 0.7%; this report may affect the US dollar;

Thursday – Philly Fed Manufacturing Index: This monthly survey estimates the growth of the US manufacturing sectors. In the previous survey regarding April, the growth rate rose from +9 in March to +16.6 in April. If the index further grows, it may positively affect not only U.S Dollar but also U.S equity markets and commodities (the recent Philly Fed review);

Oil Outlook and Breakdown

From the supply standpoint, the decline in imports could tighten the oil market. From the demand standpoint, the refinery inputs continue to slowly progress. In total, although the supply remained above the demand, the gap between the two narrowed. Nonetheless, the storage rose again at a steady pace. This could suggest the oil market remains loose. Looking forward, the OPEC and IEA reports will show of any changes in global demand and supply. If these reports show a significant change in production or shift in oil outlook, these reports could stir up the oil market. Moreover, the upcoming Philly fed, U.S and China’s industrial production reports could offer some input regarding the progress of these two world’s leading oil consumers. If these reports don’t meet the market expectations, they could pressure down the price of oil. The gap between Brent and WTI remained between $7 and $9 and is likely to remain at this range.

The bottom line, on a weekly scale, oil won’t do much and remain relatively flat.   

For further reading:

Weekly Outlook of Financial Markets for May 12-16

Will Exxon Continue To Trade Up?

Will Oil Come Down Anytime Soon?

Will Gas Prices Hit $4 a Gallon?