What's Affecting Oil Prices This Week (May 22, 2017)?

Monday, May 22, 2017 - 11:15am

Prior to the beginning of last week, Stratas Advisors forecast that the price of Brent crude would move upward and would test $53.60. The forecast was based on the expectation that a number of factors had become supportive of higher oil prices. These factors included geopolitics with the results of the French presidential outcome, removing a risk factor pertaining to the stability of the EU and the euro.

In conjunction with the reduced European risk, coupled with some signs of softness in the U.S. economy, the U.S. dollar was expected to experience further weakening. Stratas also expected that the perceptions of supply and demand would be shifting to a more positive viewpoint with increasing signs that OPEC (and cooperating non-OPEC producers) would extend production cuts, while demand (including U.S. gasoline demand) remained sufficiently robust.

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The actual price movement of Brent crude aligned closely with the Stratas forecast. The price of Brent crude started the week at $50.84, then moved above $51 during the first part of the week. In the second half of the week, the price of oil moved above $52 and then moved strongly on Friday to close at $53.61.

The closely watched EIA weekly report, which is released on Wednesday, was supportive of the oil price with crude inventories decreasing by 1.75 million barrels (MMbbl) coupled with a reduction in product inventories (inventories of gasoline decreased by 413,000 barrels, and inventories of distillate fuel oil decreased by 1.944 MMbbl).

The firm also forecast that the Brent-WTI differential would continue to trade in the range of $2.30 and $2.80 with respect to the July contract. The Brent-WTI differential started the week at $2.67, and stayed relatively flat during the first half of the week. The Brent-WTI differential widened in the second half of the week, in conjunction with the significant increase in the price of Brent crude oil, and closed at $2.94. The Brent-WTI differential is at the widest level since Q4 2015.

For the upcoming week Stratas Advisors forecasts the price of Brent crude to move upward and break through $55. The firm are also expecting that the Brent-WTI differential will trade in the range of $2.60 and $3.10 with respect to the July contract.

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