Terrorism has recently hit several locations, including: the car bombing in Istanbul undertaken by Kurdish separatists; the shooting in Tel Aviv undertaken by Palestinian attackers; and the mass shooting in Orlando, Fla., undertaken by a shooter linked to ISIS.
These acts of terrorism highlight the broader sectarian differences that are affecting the Middle East, Central Asia and Africa. Additionally, the acts of terror, coupled with political instability surrounding several countries, will negatively affect the global economy – which, in turn, will negatively affect oil demand.
Recent analysis from Stratas Advisors’ macroeconomics team indicates the fragility of the emerging economies. China is in the midst of a painful process of shedding industrial capacity, which has kept price pressures low and, per manpower, appears to be slackening the local labor market as well. India’s central bank has managed to bring inflation within target, but has thus far resisted pressure by politicians to further ease it.
See the additional factors affecting oil prices this week: StratasAdvisors.com/WAOP
Meanwhile, the number of operating oil rigs in the U.S. increased last week by three, according to the report from Bakers Hughes. It is the second straight week of increases– and only the third week in the year that the number of operating oil rigs increased.
A recent analysis of the Permian Basin by Stratas Advisors’ North American Shale team reveals the basin has weathered the downturn extremely well since market prices initially began falling toward the end of 2014.
The basin has beaten many production estimates and continues to outpace other regions in terms of output.
Despite the overall production increases the play has shown, the basin has begun to show minor month-over-month declines since April 2016. Despite the declines, Stratas Advisors projects that the play will continue to show year-over-year growth from 2016 to 2017.
A Look Back
Before the beginning of last week, Stratas Advisors expected that the inventories of crude would decrease between 3.5 million barrels (MMbbl) and 4.5 MMbbl. In actuality, the inventories of crude decreased by 3.23 MMbbl.
The level of crude imports fell to 7.705 MMbbl/d, which was a decrease of 134 Mbbl/d in comparison with the previous week.
The firm also expected that the Brent-WTI differential would trade between parity and 50 cents with respect to the August contract. In actuality, the Brent –WTI differential started the week at 53 cents and then narrowed early in the week to 38 cents before widening to close the week at 82 cents.
The widening of the Brent-WTI differential was driven in part by the increase in the inventories of gasoline and distillate fuel oil.
A Look Ahead
For the upcoming week, we are expecting that inventories of crude oil will decrease between 2.50 MMbbl and 3.50 MMbbl.
The firm expects that the price of Brent crude oil will be under pressure with support at $48.60/bbl. Stratas Advisors also expects that the Brent-WTI differential will trade between parity and 50 cents with respect to the August contract.
The article is an excerpt from Stratas Advisors’ Short-Term Price Outlook service, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.
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