Oil Weekly Outlook For November 19-23

During last week, crude oil remained nearly unchanged, which coincided with the mixed trend in the forex markets. The recent tensions in the Middle East didn’t seem to directly affect the oil market for now. According to the recent EIA report, the oil stockpiles fell by 4.7MB. During last week, WTI oil rose by 0.64%; Brent oil slipped by 0.41%. As a result, the gap between the Brent oil and WTI remained nearly unchanged: The difference between Brent and WTI ranged again between $22 and $23. Will oil prices resume their downward trend next week? During the upcoming week there are several reports and publications that could affect the oil market. These reports include: U.S existing home sales, flash manufacturing PMI of EU and China and EIA oil weekly report.

Here is a weekly outlook and analysis of the crude oil market for November 19th to 23rd:

Oil Prices – November

During last week, crude oil price (WTI) increased by 0.64% and reached by Friday $86.62/b; Brent oil decreased by 0.41% to $108.95/b; during November, WTI spot oil rose by 0.44%; Brent oil, by 0.23%.

In the chart below are the changes in WTI and Brent oil prices during November (prices are normalized to October 31st). As seen, the prices of oil shifted with an unclear trend during recent weeks.

oil forecast Brent and WTI spot rates  2012  November 19-23

Premium of Brent over WTI –November

The gap between Brent oil and WTI spot oil remained at its range during last week; it ranged during last week between $22 and $23 per barrel range. During the month the premium slipped by 0.58%.

Difference between Brent and WTI November 19-23  2012

Oil Stockpiles – Fell by 4.7 Mb

The oil stockpiles declined by 4.7MB and reached 1,789.2 million barrels. The linear correlation between the changes in stockpiles tends to be negative: this correlation implies that the price of oil, assuming all things equal, will slightly rise next week. The upcoming report will be published on Wednesday, November 21st and will refer to the week ending on November 16th.

IEA Monthly Report

According to the recent report, non-OPEC production rose by 0.84 ml b/d during last month and reached 53.4 ml b/d; OPEC’s production, on the other hand, slipped to 31.15 ml b/d during October to a nine month low. OECD oil inventories sharply rose by higher than expected rate of 15.2mb during September. Moreover, the current expectations are that OECD inventories rose again by 5.5 mb in October. Finally, the global refinery throughputs reached in the third quarter an average 75.9 mb/d. The current expectations are that in Q4 the average throughputs will fall to 75.5 mb/d but the annual growth is expected to rise.

This update suggests the oil market has loosened up a bit during recent months. If this trend will continue, it could further pull down the oil price.

There are also reports that Saudi Arabia’s oil exports rose during September due to a rise in efficiency in local refineries.

Main Oil Related News Items for the upcoming week

Tuesday – Euro-group Meeting: Following last week’s meeting, the EU ministers of finance had decided to make the decision regarding Greece’s next bailout package; if the EU will decide to make this bailout, which many expect will take place, then this may pull up a bit the Euro;

Tuesday – U.S. Building Permits: The latest report building permits also hiked during September by 1% (M-o-M) in the adjusted annual rate of building permits and reached 894,000.;

Wednesday – China flash Manufacturing PMI: based on the HSBC Manufacturing PMI report regarding October the Manufacturing PMI rose to 49.1, which means the manufacturing sectors are still contracting; this index indicates the developments in China’s manufacturing sectors growth rate; if the index will increase, this may positively affect commodities;

Thursday – Flash German, French and Euro Area Manufacturing PMI: In October, the German PMI declined to 45.7 i.e. the manufacturing conditions are contracting at a slightly faster rate;

Foreign Exchange and Oil Prices Relation – November

The EURO/USD currency pair rose last week by 0.26%. Conversely, the AUD/USD declined by 0.46% last week. This mixed trend may have contributed to the mixed trend in oil prices. Further, there are still positive correlation among these currencies pairs (Euro/USD) and oil prices, even though the relation has weakened in recent weeks. E.g. the linear correlation between the price of oil and AUD /USD was 0.41 during the month. If the U.S dollar will depreciate against the EURO and AUD, it may pull up oil prices.

Oil Prices Outlook and Analysis

Following the low volatility in the prices of oil during last week, there might a rise in volatility during this week. The upcoming                 Thanksgiving holiday could lower the trading volume and thus raise the volatility. The recent tensions in the Middle East could pull up the price of oil; even thought, up to now, it didn’t seem to have any direct effect on the oil market. The gap between Brent and WTI oil remained in its range last week but might contract during next week. Oil stockpiles fell last week, which could suggest that oil prices in the U.S will rise next week. The upcoming reports including China’s manufacturing PMI, building permits and EU manufacturing PMI could affect the direction of oil from the projected demand side. If these reports will show some growth, they could pull up the prices of oil. Finally, if major currencies including EURO and Aussie dollar will appreciate against the U.S. dollar, then they may also pull up oil prices. The bottom line, I guess the prices of oil will change direction and slightly rise on a weekly scale even thought they could zigzag throughout the week.

I speculate during the upcoming week, WTI oil will trade between $84 and $89 and Brent between $104 and $112.

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