Guest Commentary: Oil Prices Weekly Outlook November 14-18

Oil Prices – Weekly Outlook November 14-18

Oil prices rallies during most of last week and may also continue their upward trend in the upcoming week depending on the development in Europe and U.S. The recent news from the Middle East in particular the explosion of a missile base in Iran might raise the concerns in the Middle East and might also consequently adversely affect the oil market. But for the time being the region remains stable. In the upcoming week there are many items on the agenda that could affect crude oil prices including Euro Area GDP for third quarter, U.S. PPI, American retail sales report and Philly Fed survey.

On Friday, November 7th oil price (WTI) rose by 1.24% to $98.99/b – the highest price level since July 26th; Brent also inclined by 0.91% to $113.76/b.

The chart below shows the development of WTI and Brent during November (prices are normalized to October 31st).

The premium of Brent over WTI sharply fell throughout the week and reached on Friday to $14.77. During November the premium fell by 9.55%.

Oil Stockpiles – Sharply Fell Last Week

U.S. oil stockpiles changed direction and sharply declined by 15.3 million barrels to 1,745.3 million barrels. The current oil stocks are 96,705 million barrels below oil stocks levels recorded in the same week last year.

If the oil stocks will decline again it may further pressure the WTI to rise again.

The new report will be published on Wednesday.

On This Week's Agenda:

Tuesday: U.S. Retail Sales: this report could indicate the changes in U.S demand for gasoline (see here my review of the recent report).

Tuesday: Euro Area GDP 3Q2011 Report: If this report will be positive and show an improvement in the third quarter, it could also positively affect crude oil prices to rise as well (see here recent report);

Thursday: U.S. Housing Starts and Building Permits: in the recent report, the adjusted annual rate of housing starts reached 658,000 in September - a 15% increase from August , while the building permits slipped by 5%. If the upcoming report will be positive it may also positively affect oil prices (see here the recent review);

Thursday: Philly Fed Manufacturing Index: This survey provides an indicator for the economic progress of the US economy as it measures the manufacturing conditions of the US. In the October the index inclined (see here last report).

Forex and Oil– November

The EURO/USD slipped during last week by 0.19%; this trend continues the downward trend of the Euro against the USD along with other currencies. If the USD will further appreciate against the risk currencies this may also affect oil and curb its recent rally.

U.S. Stocks / Oil– November

The S&P500 slightly inclined during last week by 0.22% to 1,263 on Friday; during recent months there was a strong positive correlation between oil prices and S&P500 (e.g. during October-November the correlation with WTI was 0.864 and with Brent 0.787).

Oil Analysis:

The rally of oil in the past couple of weeks is affected, in part, by the upward trend of the American stock markets; this had a strong effect especially on the WTI that helped close the gap between WTI and Brent. The stagnation in OPEC's oil production growth in October may have also helped pressure oil to rise. The low oil stockpiles in the U.S. may also affect oil to rise. If the upcoming American reports including housing starts, Philly Fed and retail sales will show growth, they could help oil to rise during the week.

For further reading:

Gold and Silver Prices Weekly Outlook for November 14th – 18th

Gold & Silver Prices – Daily Outlook November 14

Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.

By: Lior Cohen, Energy Analyst for Trading NRG