WTI Crude
56.67
Brent Crude
62.03
Natural Gas
3.03

What Affecting Oil Prices This Week? (March 21, 2016)

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Last week we expected that the price of Brent crude would move sideways after three weeks of gains during which the price of Brent crude moved from $33 to $40. The actual price movement turned out to be slightly more bullish than expectations. The price of Brent crude started the week at $40.39, then moved to a high of $41.54 on Thursday before closing the week at $41.20.

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We also forecasted that the BrentWTI differential would trade between 40 cents and $1.20 with respect to the May contract. During the week the BrentWTI differential started the week 30 cents, then increased to 69 cents before moving to WTI being priced higher then Brent by 12 cents. The week closed with Brent being priced higher than WTI by 6 cents.

The narrowing of the BrentWTI differential during the second half of the week was driven, in part, by a build of crude inventories of 1.31 million barrels (MMbbl) coupled with reduction of inventories for both gasoline (0.747 MMbbl) and distillate fuel oil (1.135 MMbbl).

For the upcoming week we expect that the price of Brent crude oil will move toward $42.50. Additionally, we are forecasting that the BrentWTI differential will trade between zero and 60 cents with respect to the May contract.

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The following is the supporting rationale for the forecast:

  • While geopolitical risks are increasing, geopolitics will remain a neutral factor with respect to the price of Brent crude;
  • The U.S. dollar will be a positive factor with respect to the price of Brent crude;
  • Because of the continual reduction of short positions the sentiment of oil traders will be a positive factor with respect to the price of Brent crude;
  • For another week, supply will be a neutral factor with respect to the price of Brent crude;
  • For another week demand will be a neutral factor with respect to the price of Brent crude;
  • Because of the favorable refining margins in the US, refining margins will be a neutral factor with respect to the price of Brent crude.

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