The prices of crude oil (both WTI and Brent) rose again during most of last week: WTI increased by 2.81%; Brent oil, by 1%. As a result, the difference between the Brent oil and WTI shrank again; the gap between Brent and WTI ranged between $8 and $9. According to the latest EIA report, oil stockpiles also changed course and sharply rose by 12.3Mb. Moreover, imports, and production increased while refinery inputs fell during last week. The rise in oil supply may pull back the rates of oil. Will oil change course next week? In the upcoming week, several publications may affect the oil market. These items include: China and Australia trade balance report, OPEC monthly report, and EIA oil weekly update.
Here is a weekly outlook and analysis for the crude oil market for May 6th to May 10th:
Oil Prices – May
During the previous week, crude oil price (WTI) rose by 2.81% and reached by Friday $95.61/b; moreover, Brent oil also increased by 1% to $104.19/b; during May, WTI oil increased by 2.3%; Brent oil, by 1.78%.
In the chart below are the developments in WTI and Brent oil rates during February to May (prices are normalized to January 31st). As seen below, the oil prices have rallied in recent weeks.
The gap between Brent oil and WTI spot oil shrank again to the range between $8 and $9 per barrel. During April, the premium declined by 30.34%.
The oil stockpiles sharply rose by 12.3 MB and reached 1,792.1 million barrels. The linear correlation between the changes in stockpiles is still mid-strong and negative: this correlation suggests that the price of oil, assuming all things equal, will fall next week.
Moreover, oil imports to the U.S rose by 0.8% last week. The weekly developments in oil imports have a mid-strong negative relation (-0.33) that suggest oil prices may fall next week. Oil production increased again while refinery inputs slipped last week. In other words, the rise in production and imports might suggest the oil market has slightly loosened in the U.S.
The next weekly report will be published on Wednesday, May 8th and will refer to the week ending on May 3rd.
OPEC Monthly Report
The OPEC report will present 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 during August 2012; this news may affect oil prices (See here a summary of the previous report).
The next report will be published on Friday, May 10th.
Main Oil Related News Items for the upcoming week
Tuesday – German Factory Orders: This report will pertain to the developments in the factory orders of Germany for March; in the last report the German factory orders rose by 2.3% (M-o-M);
Tuesday – Australian Trade Balance: The report will pertain to March 2013. In the previous update, regarding February, the seasonally adjusted balance of goods and services contracted its deficit to $178 million. If exports will dwindle in March, it might suggest a drop in demand for commodities (see here recent report);
Wednesday –China’s Trade Balance: according to the recent monthly report, China’s trade balance tumbled down to a $0.9 billion deficit; if the deficit will further rise, it could indicate that China’s economic growth is slowing down and thus may adversely affect prices of commodities.
During March 2013 the index fell to 51.3%; this means the manufacturing is growing at a slower pace; this index may affect crude oil markets.
Friday – U.S. Non-Farm Payroll Report: in the previous report non-farm payroll employment rose by only 88k; if in the upcoming report the employment will rise again by below 150 thousand (in additional jobs), this may pull down oil prices (see here my last review on the U.S employment report);
Foreign Exchange and Oil Prices Correlations – May
During last week, the EURO/USD slightly increased by 0.64%; the AUD/USD also rose by 0.42%. The correlations among these currencies pairs (AUD /USD) and oil prices remained robust and positive. E.g. the linear correlation between the price of oil and AUD /USD was 0.63 during April/May. If the U.S dollar will continue to depreciate against “risk currencies”, this may pressure up oil prices.
Oil Prices Outlook and Analysis
From the supply side, the ongoing rise in imports and production in the U.S might pressure down oil prices. Moreover, the rise in storage is another indication for a rise in supply or a decline in demand, which could also suggest that oil prices may fall. On the other hand, the ongoing fall in refinery inputs is likely to curb the drop in oil prices. OPEC’s upcoming monthly update will show of any changes in OPEC’s production. From the demand side, the upcoming reports regarding the Australia and China’s trade balance reports might provide an update to the expected developments from demand and supply sides. If the reports will show a slowdown in China’s imports or a drop in Australia’s exports, they could also pull down the prices of oil. The difference between Brent and WTI oil ranged between $8 and $9 and might continue its downward trend in the coming weeks. Finally, if major currencies such as the EURO and Aussie will continue to appreciate against the U.S. dollar, they may pull up oil prices. The bottom line, I guess the prices of oil will slowly fall next week.
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