Oil Weekly Outlook for May 20-24

The rates of crude oil (both WTI and Brent) remained virtually unchanged during last week: WTI inched down by 0.02%; Brent oil slipped by 0.18%. As a result, the difference between the Brent oil and WTI remained nearly flat; the premium of Brent over WTI ranged between $7 and $8. According to the recent EIA update, oil stockpiles increased by 2.6Mb. Moreover, imports, refinery inputs and production increased during last week. The rise in oil supply may pull down the prices of oil.  IEA’s recent monthly update showed the non-OPEC supply increased to 54.5 mb/d for 2013. Will oil further decline next week? In the forthcoming week, several publications may affect the oil market. These items include: China’s manufacturing PMI, U.S core durable goods sales, minutes of FOMC meeting, and EIA oil weekly update.

Here is a weekly outlook and analysis for the crude oil market for May 20th to May 24th:

Oil Prices – May

During last week, crude oil price (WTI) slightly fell by 0.02% and reached by Friday $96.02/b; moreover, Brent oil slightly decreased by 0.18% to $103.72/b; during May, WTI oil increased by 2.74%; Brent oil, by 1.32%.

In the chart below are the developments in WTI and Brent oil prices during February to May (prices are normalized to January 31st). As seen below, the oil prices have remained nearly unchanged in the past couple of weeks.

oil forecast Brent and WTI May 20-24 2013

Premium of Brent over WTI – May

The gap between Brent oil and WTI spot oil remained nearly unchanged to the range between $7 and $8 per barrel. During May, the premium declined by 13.58%.

Difference between Brent and WTI  May 20-24  2013

Oil Stockpiles –Rose by 2.6Mb

The oil stockpiles rose again by 2.6 MB and reached 1,798.3 million barrels. The linear correlation between the shifts in stockpiles has slightly weakened and reached -0.18: this correlation suggests that the price of oil, assuming all things equal, will fall next week.

Oil imports to the U.S rose by 0.6% last week. The weekly changes in oil imports have a mid-strong negative relation (-0.316) that suggest oil prices may fall next week. Oil production also increased along with refinery inputs during last week. In other words, the rise in imports, production and refinery inputs might suggest the oil market has slightly loosened in the U.S.

The next weekly report will be published on Wednesday, May 22nd and will refer to the week ending on May 17th.

IEA Monthly Report

Based on the recent monthly update, non-OPEC supply for 2013 is estimated to rise by 50 kb/d to reach 54.5 mb/d. Global oil demand is expected to rise in 2013 to 90.6 mb/d. In OECD, led by Japan, inventories rose again during March. This news may have pulled down the price of oil.

Main Oil Related News Items for the upcoming week

Wednesday – Minutes of April-May’s FOMC Meeting: Following the April/May FOMC meeting, in which the Fed left its monetary policy unchanged, this news had little effect on commodities. If the minutes will reveal the Fed’s intentions to consider easing down its asset purchase program in the next several months, this could drag down oil prices;

Wednesday – China flash Manufacturing PMI: as of the recent the HSBC Manufacturing PMI survey regarding April 2013 the Manufacturing PMI slipped to 50.5; this index indicates the growth in China’s manufacturing sectors; if the index will continue to decline, this may adversely affect commodities;

Friday – U.S Core Durable Goods: This monthly update may indirectly indicate the developments in U.S. demand for commodities such as oil and gas. As of March 2013, new orders of manufactured durable goods decreased to $216.3 billion;

Foreign Exchange and Oil Prices Correlations – May

During the previous week, the EURO/USD declined by 1.15%; the AUD/USD also tumbled down by 2.94%. 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 0.44 during April/May. If the U.S dollar will continue to appreciate against “risk currencies”, this could pressure down oil prices.

Oil Prices Outlook and Analysis

From the supply side, the rise in refinery inputs, imports and production in the U.S might drag down oil prices. Moreover, the buildup in storage is another indication for an increase in supply or a decline in demand, which could also suggest that oil market is loosening up in the U.S. IEA’s recent monthly update showed the oil supply and OECD inventories increased during the previous month. From the demand side, the upcoming reports regarding U.S core durable goods, and China’s manufacturing PMI might provide an update to the expected developments from demand sides.  If the reports will show a slowdown in China or U.S, they could pull down the prices of oil. The difference between Brent and WTI oil ranged between $7 and $8 and might continue its contraction in the following weeks. If the FOMC will show in the minutes of the recent meeting that the Fed might plan to ease down its asset purchase program, this could adversary affect oil prices via the movement of the USD in the forex markets. Finally, if major currencies such as the EURO and Aussie will continue to depreciate against the U.S. dollar, they may pull down oil prices. The bottom line, I guess the prices of oil will further decline next week.

For further reading: