A shortened and relatively uneventful week saw Brent lose about 2% and WTI remain flat. Crude nearly touched 42 USD/bbl., a 2016 high, before returning to 40 USD/bbl. The small decrease last week marked the end of oil’s impressive 5-week run of positive returns. Despite the recent decline, crude’s year-to-date return is still positive (9% for Brent, 7% for WTI).
- The only big oil news of the week was the build in American crude inventories. Analysts were expecting an increase of roughly 2.5 million barrels; instead, the Energy Information Administration announced that inventories increased by over 9.3 million barrels. Total American stockpiles are at 523.2 million barrels, which, according to Bloomberg, is the highest level since 1930. While this week’s release was certainly above expectations, the overall trend is no surprise: we know that global supply greatly exceeds demand. This information pushed crude off its yearly high, ultimately ending its streak of weekly gains.
- As last week was a bit slow on news, it is perhaps a good opportunity to reflect on the state of the market more broadly. During its 5-week rally, oil traded within a narrow upward channel. After the inventory news, the price broke through the bottom of this channel. From a technical analysis standpoint, this would indicate that the trend in the market is changing, and we can expect the price to continue to fall. This would be consistent with the general “risk off” mood in the market, which has seen prices of riskier securities lose value over the last few trading days. We expect the price of WTI to decline to roughly 33 USD/bbl., where it meets both an established support level and its 50-day moving average (important technical analysis signals).
- Last week, gasoline increased by 3% while diesel decreased by 3% when denominated in USD/gal. A weakening loonie had a negative impact on Canadian consumers, with gasoline up nearly 5% and diesel falling only 1% here at home. This leaves diesel at 0.42 CAD/L and gasoline at 0.52 CAD/L. As we expect oil prices to continue their downward trend in the coming days and weeks, we recommend waiting until crude moves lower before fixing your fuel costs.
Philippe Shebib