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Prior to the beginning of last week, we forecasted that the price of Brent crude would move sideways and would trade between $49 and $51. The forecast was based on the expectation that oil traders would take a more jaundiced view of the OPEC deal that came out of the recent meetings in Algiers. Additionally, we expected that the corresponding concern about oversupply would outweigh the improvement in the demand side of equation, as indicated by the decline in product inventories.
The actual price movement of Brent crude reflected a more optimistic market than we expected. The price of Brent crude started the week at $49.06, then moved upward to a high of $52.51 on Thursday before falling back on Friday to $51.93.
We also forecasted that the Brent-WTI differential would trade between $1 and $2 with respect to the December contract. In actuality, the Brent-WTI differential started the week at 82 cents, but widened on Monday to $1.49 and then stayed relatively stable to close the week at $1.55.
The Brent-WTI differential stayed wide even though the inventory report from the Energy Information Agency indicated that crude inventories in the U.S. declined during the previous week by 2.98 million barrels. With the drawdown of the previous week, crude inventories dropped just below 500 million barrels (499.74 million barrels) for the first time since early February of this year, and now stand only 38.74 million barrels above the level of the same time period last year. In comparison, at the beginning of the year crude inventories were nearly 100 million barrels greater in comparison with the previous year.
For the upcoming week we are expecting that the price of Brent crude oil will have upward support, but will not break through $53 this week. We are also expecting that the Brent-WTI differential will trade between $1 and $2 with respect to the December contract.
For additional supporting rationale for this forecast, visit StratasAdvisors.com.
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