Oil Weekly Outlook For October 8-12

During last week, crude oil prices shifted with an unclear trend as the price of WTI oil slipped while Brent oil edged up. Due to the different paths these oil prices followed, the gap between the Brent oil and WTI widen again: The difference between Brent and WTI ranged between $19 and $21. During last week, WTI oil declined by 0.45%; Brent oil rose by 0.86%. The oil stockpiles declined again during last week by 2.4 M bl.

During the upcoming week there are several reports and events that may affect the oil market including: U.S trade balance, G7 meeting, EIA monthly update, OPEC monthly report and China’s new loans.

Here is a weekly outlook and analysis of the crude oil market for October 8th to 12th:

Oil Prices –October

During last week, crude oil price (WTI) declined by 2.5% and reached by Friday $89.88/b; Brent oil, also fell by 0.88% to $112.26/b; during September-October, WTI spot oil fell by 6.83%; Brent oil, by 2.77%.

In the chart below are the shifts in WTI and Brent oil prices during last week (prices are normalized to September 28th). As seen, oil traded down during last week.

oil forecast Brent and WTI spot rates  2012 October 8-12

Premium of Brent over WTI –October

The difference between Brent oil and WTI spot oil increased by the end of the week; it ranged during last week between $19 and $22 per barrel range. During the month the premium rose by 6.22%.

Difference between Brent and WTI  October 8-12 2012

Oil Stockpiles –Declined by 2.4 Mb

The oil stockpiles decreased during the previous week by 2.4M bl to reach 1,796.4 million barrels. The linear correlation between the changes in stockpiles tends to be negative: the linear correlation between oil price and the lagged by one week oil stockpiles is -0.18, this suggests that the price of oil, assuming all things equal, will rise next week.  The upcoming report will be published on Wednesday, October 10th and will pertain to the week ending on October 5th.

OPEC Monthly Report

The OPEC report will show the main changes 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 September 2012; this news may affect oil prices (See here a summary of the previous report).

The next report will be published on Wednesday, October 10th.

IEA Monthly Report

This upcoming monthly report will present an updated (for September) outlook and analysis for the global crude oil and natural gas market for 2012 and 2013.

The next report will be published on Friday, October 12th.

Main Oil Related News Items for the upcoming week

Wednesday – China New Loans: According to the last report, the total loans rose as the People Bank of China BOC had cut the interest rate and eased the restrictions on commercial banks regarding new loans; this report is another indicator for the economic progress of China;

Thursday – G7 Summit: the G7 Summit will be held in Tokyo in which the ministers of finance of the G7 will talk about the recent financial developments in the leading economies. In the Summit the ministers may talk about the “fiscal cliff” in the U.S and the European debt crisis. If there will be big headlines from this Summit it may have some effect on the financial markets;

Thursday –American Trade Balance: This monthly report for August will show the recent changes in imports and exports of goods and services to and from the U.S, including commodities such as oil; according to the recent American trade balance report regarding July 2012 the goods and services deficit edged up during the month to $42 billion;

Friday– Euro Area Industrial Production: in the recent report the EU industrial production rose by 0.6% (M-O-M) during July;

Friday – U.S. Producer Price Index: In the recent report regarding August this index for finished goods hiked by 1.7% compared with July’s rate and rose by 0.5% in the last 12 months; this news might affect commodities;

Foreign Exchange and Oil Prices Relation – October

The EURO/USD currency pair rose last week by 1.4%; alternatively, the AUD/USD rose by 1.87%. These changes may have affected 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 0.49 during September-October. If the U.S dollar will fall against the EURO and Aussie dollar, it may pull down oil prices.

Oil Prices Outlook and Analysis

The difference between Brent and WTI oil slightly rose again during last week and may continue to rise during next week. Oil stockpiles fell last week, but the oil production hiked, which could suggest that oil prices in the U.S won’t rally next week. The upcoming U.S reports including U.S trade balance could affect oil rates. If the report will show little progress, it could pull down oil prices. If there will be some positive reports from Europe and China, they could help rally oil prices. OPEC and IEA report will offer some insight behind the developments in oil production; if the reports will show little change in oil production, they won’t affect much the oil market.  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 is that I suspect oil prices might rally from last week’s but not by much.

I speculate during the upcoming week, WTI oil will trade between $85 and $92 and Brent between $108 and $113.

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