During last week crude oil prices resumed their rally as both WTI and Brent oil increased. The difference between Brent and WTI slightly rose but remained at its $17-$19 range. The FOMC decision to launch QE3 may have contributed to the rally of oil prices. During last week, WTI oil slipped by 2.7%; Brent oil, by 3%. The oil stockpiles rose during last week by 2.3 M bl. OPEC’s oil production slightly rose last month.
During the upcoming week there are several reports and events that may affect the oil market including: U.S Philly Fed survey, ECB President Speech, and U.S housing starts.
Here is a weekly outlook and analysis of the crude oil market for September 10th to 14th:
Oil Prices –September
During last week, crude oil price (WTI) rose by 2.7% and reached $99/b; Brent oil also increased by 3% to $117.6/b; during the month, WTI spot oil rose by 2.6%; Brent oil, by 1.8%.
In the chart below are the changes in WTI and Brent oil prices during the past several weeks (prices are normalized to July 31st). As seen, oil prices have had an upward trend during September.
Premium of Brent over WTI – September
The difference between Brent oil and WTI spot oil slightly rose but remained at the $17-$19 per barrel range. During the month the premium declined by 2.1%.
Oil Stockpiles –Declined by 4.5 Mb
The oil stockpiles increased during the previous week by 2.3 M bl to reach 1,790 million barrels. The upcoming report will be published on Wednesday, September 20th and will refer to the week ending on September 13th.
OPEC Oil Production Rose during August
According to the recent OPEC report the OPEC oil production slightly rose to reach 31.4 million bbl per day during August compared to the previous month (See here a summary of the previous August report).
Main Oil Related News Items for the upcoming week
Tuesday – U.S. Housing Starts & Building Permits: in the previous report, the adjusted annual rate reached 754,000 in July 2012, which was 1.1% below June’s rate; on the other hand building permits rose by 6.8% (M-o-M) in the adjusted annual rate of building permits and reached 812,000 in July 2012.
Wednesday – China flash Manufacturing PMI: this survey covers 800 companies in 20 industries in China; according to the HSBC Manufacturing PMI flash report for August the Manufacturing PMI fell to 47.8, which means the manufacturing conditions are still contracting in China; if this negative index will continue, this may adversely affect commodities prices;
Thursday – Philly Fed Manufacturing Index: In the previous August survey, the growth rate rose from -12.9 in July to -7.1 in August. If the index will remain negative it may adversely affect oil (the recent Philly Fed review);
Thursday – ECB President Speech: Mario Draghi is likely to refer to the recent German Court ruling, and he may also refer to the future monetary steps the ECB will take in order to jump start the EU economy and lower the borrowing costs of the struggling EU economies such as Spain and Italy. This speech might affect the Euro;
Foreign Exchange and Oil Prices Relation – September
The EURO/USD currency pair increased last week by 2.43%; further, the AUD/USD also rose by 1.6%. These rises, however may have helped to pull up the prices of oil. Further, there are still positive correlation among these currencies pairs (EURO/USD, AUD/USD) and crude oil price. E.g. the linear correlation between the price of oil and Euro/USD was 0.62 during August- September. If the U.S dollar will continue to fall against the EURO and Aussie dollar, it may rally oil prices.
Oil Prices Outlook and Analysis
The difference between Brent and WTI oil remained nearly unchanged during last week but may start to rise during the upcoming week. Oil stockpiles rose last week, which could suggest that oil prices in the U.S will trade down this week. The upcoming U.S reports including Philly fed and housing starts could affect oil rates. Further, the recent FOMC meeting could continue to have lingering effects on crude oil prices. Finally, if major currencies including EURO and Aussie dollar will further appreciate against the U.S. dollar, then they may also rally oil prices.
I speculate during the upcoming week, WTI oil will trade between $97 and $102 and Brent between $115 and $120.
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