The Libyan war is nearing an end after over half a year of fights between the rebels and Gaddafi’s forces. This news is already affecting the trade of crude oil as Brent oil is currently traded down; the spread between Brent oil and WTI spot oil also closes a bit after it had reached its peak on Friday. Today, the US Mortgage delinquency rate will be published.
Here’s a short analysis of the crude oil market for today, August 22nd:
Crude oil prices –August
On Friday, August 19th crude oil price (WTI) slightly fell by 0.15% to $82.26/b; Brent oil price on the other hand inclined by 2.43% to $109.53/b; during August WTI spot oil declined by 14.03%; Brent oil fell by only 5.52%.
The chart below presents the price development of WTI spot oil and Brent oil during February to August. It shows the price hike in Brent and WTI oil prices as the Libyan war started and the sharp fall in oil prices at the beginning of August when S&P downgraded US credit rating.
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil sharply inclined again on Friday August 19th to $27.27/b – the widest gap between these two oil prices; during August this premium rose by 34.67%, mainly because WTI spot oil price declined by a sharper rate than Brent oil price did. The recent news from Libya might ease the rise of Brent oil and bring down the premium of Brent oil over WTI.
The rebels have conquered most of Tripoli
The Rebels have conquered most of Tripoli and the news suggests that they are negotiating with Gaddafi over the terms of his exist. In the mean time, there are fights near Gaddafi’s palace.
Since February 2011, the Libyan crude oil production has fallen from 1.6 million bbl/d in 2010 to 53 thousand bbl/d during July 2011.
S&P500 / crude oil prices – August update
The S&P500 along with other stock indexes fell on Friday: the S&P500 index fell by 1.50%. The correlation between oil prices and S&P500 isn’t reliable, but was very strong and positive in recent months including August so far; in fact during August, the correlation reached 0.643 for Brent oil and 0.499 for WTI spot oil. This means, as the Stock market falls, crude oil prices are likely to follow and decline as well. If the S&P500 index will continue to fall today, it might further push down crude oil prices.
U.S. Mortgage delinquency rate report
Today, the U.S. mortgage delinquency report will be published. During the first quarter, the seasonally adjusted deliquesce rate slightly increased to 8.32% – up by 7 basis points from the fourth quarter 2010, but declined by 174 basis points from 1Q 2010. This is another good indication of the U.S. real estate market situation and consequently the progress of the US.
Current crude oil prices
Major crude oil prices are currently traded with nixed trend in the European market:
The Nymex crude oil price, short term futures (September 2011 delivery) is traded at $83.03 / barrel, a $0.77/b increase or 0.94%, as of 11:42*.
The Dated Brent spot oil price declines by $1.97/b to $107.56/ barrel as of 12:09*.
Thus, the current premium of Brent over WTI is at $24.53/b.
Crude oil price outlook and analysis:
The news from Libya might contribute to the recent downward trend of crude oil prices; it might even help bring down the high premium of Brent oil price over WTI oil price. But it’s still far from declaring status quo in Libya: until the rebels will start to organize and secure the stability of Libya, it will take time until Libya’s oil production and export will resume its pre-war capacity. Therefore this news might stir up the crude oil market and bring down oil prices, especially Brent oil price.
If the US stock markets will resume their falls it will likely to affect oil prices to trade down as well. I still think that oil prices fell too sharply too soon. In the near future WTI oil price will settle around $85-$90 mark and Brent oil around $108-$112.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
15:00– US Mortgage delinquency rate Q2 2011
08:00– French and German flash manufacturing PMI (August 2011)
10:00 – Euro and German ZEW economic sentiment
13:30 – Core retails sales Canada (May 2011)
15:00 – U.S. new home sales
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.