You can forget from the fundamentals for now, this market reacts very sharply and extremely to the changes in directions in the stock markets. Crude oil prices fell very sharply yesterday and they are currently trade down as well. Today, the Canadian core consumer price index will be published.
Here’s a short analysis of the crude oil market for today, August 19th:
Crude oil prices –August
On Thursday, August 18th crude oil price (WTI) fell very sharply by 5.94% to $82.38/b; Brent oil price also declined by 3.36% to $106.93/b; during August WTI spot oil declined by 13.9%; Brent oil fell by 7.76%.
The chart below presents the price development of WTI spot oil and Brent oil during July August. It shows the shift from decline to rise and now back to falls in crude oil prices.
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil sharply inclined on Thursday August 18th to $24.55/b – the widest gap between these two oil prices; during August this premium rose by 21.23%, mainly because WTI spot oil price declined by a sharper rate than Brent oil price did. This also means that the gap is not o closing and getting wider.
S&P500 / crude oil prices – August update
The S&P500 along with other stock indexes sharply fell yesterday: the S&P500 index fell by 4.46% – the sharpest fall since August 10th (last week), during the same week S&P rating agency downgraded the credit rating of the US. 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 0.707 for Brent oil and 0.504 for WTI spot oil. This means, as the Stock market falls, crude oil prices soon follow and decline as well. If the S&P500 index will continue to fall today, it might further push down crude oil prices.
Canadian Core CPI
This report will show the main changes in the core consumer price index during July 2011, excluding the most volatile components such as energy, fruit and vegetables. According to the previous Canadian statistics report for June 2011, the CPI rose by 3.1% in 12 month up to June. The current expectations are that the CPI will also incline in the July report.
Natural gas market in the US cools down
According to the recent report by EIA the natural gas storage (Billion Cubic Feet) inclined last week by 1.8% or by 50 Bcf to 2,833 billion cubic feet for all lower 48 states. The natural gas storage is still 2.5% below the 5-year average.
The chart below shows the natural gas storage (weekly figures) and Henry Hub NG prices during 2010 and 2011.
U.S. existing home sales
Following the decline in US housing starts and building permits in July 2011, the U.S. existing home sales also showed a slow down. In the recent report, the seasonally adjusted annual rate fell by 3.5% to 4.67 million home sales. This news might have rekindled the falls in the stock markets over concerns of a US recession.
U.S. unemployment claims
For the week ending on August 6th, the number of insured unemployment fell by 4,500 to 3.716 million (4-week moving average). This decrease may indicate more people found jobs or gave up looking, but in any case might serve to decrease the August unemployment rate (see here my recent review on the US Labor market).
U.S. CPI – July 2011
The US inflation rose by 0.5% and the consumer price index without food and energy also rose by 0.2% during July. One of the prime contributors to the rise in the general CPI was the hike in oil prices during July. The recent falls, however in crude oil prices in August are likely to pull the CPI down.
Current crude oil prices
Major crude oil prices are currently traded down in the European market:
The Nymex crude oil price, short term futures (September 2011 delivery) is traded at $80.37 / barrel, a $2.01/b decrease or 2.44%, as of 11:02*.
The Dated Brent spot oil price declines by $0.32/b to $106.61/ barrel as of 11:13*.
Thus, the current premium of Brent over WTI is at $26.24/b.
Crude oil price outlook and analysis:
Crude oil prices fell very sharply over the precipitous decline of major stock market index including the S&P500, NASDAQ and Dow. Despite these falls, crude oil prices are likely to regain back some of these losses up ahead. The US housing report on existing home sales probably help push not only crude oil prices but also stock markets indexes down as it rekindled the market belief that the US is heading towards a slowdown. If the US stock markets will resume their sharp falls it will likely to cause oil prices to trade down as well. I still think that oil prices fell too sharply too soon and will make a gradual correction in the days to come as WTI oil price may reach $85-$90 mark and Brent oil $108-$112 mark.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
13.00 – Canadian Core CPI
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.