The Libyan war may end soon, but the market didn’t consider this news much as Brent oil slightly fell yesterday and WTI spot oil price even inclined. The spread between Brent oil and WTI spot oil declined yesterday but is still high. Today, the U.S. new homes sales report will be published the Euro Area flash manufacturing PMI and the core retail sales of Canada.
Here’s a short analysis of the crude oil market for today, August 23rd:
Crude oil prices –August
On Monday, August 22nd crude oil price (WTI) rose by 2.26% to $84.12/b; Brent oil price on the other hand declined by 0.61% to $108.86/b.
The chart below presents the normalized price development of WTI spot oil and Brent oil during August.
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil sharply declined on Monday August 22nd to $24.74; during August, this premium rose by 22.74%, mainly because WTI spot oil price declined by a sharper rate than Brent oil price did.
US dollar / crude oil prices – August update
The US dollar and Canadian dollar exchange rate slightly inclined yesterday by 0.03%. The correlation between oil prices and major exchange rates vary not only on a monthly scale, but also across exchange rates. Currently, the US dollar and Canadian dollar exchange rate shows the strongest relation with crude oil prices as seen in the chart below. This means that if the USD/CAD will fall, it may further strengthen crude oil prices.
S&P500 / crude oil prices – August update
The S&P500 index slightly inclined on Monday: by 0.03%. 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 August, the correlation reached 0.639 for Brent oil and 0.500 for WTI spot oil. This means, as the Stock market rises, crude oil prices are likely to follow and incline as well. If the S&P500 index will rebound today, it might further pull up crude oil prices.
The rebels are in Tripoli
The Rebels have conquered most of Tripoli but there are still fights in Tripoli around Qaddafi’s palace. They haven’t reached Qaddafi yet. The market didn’t seem to react much to this news, mainly because the war isn’t over yet and more importantly its very unclear how and when the Libyans will resume their oil production to the rate of 1.6 million bbl/d – the oil production rate Libya had during 2010. According to OPEC, the Libyan crude oil production reached 53 thousand bbl/d during July 2011.
U.S. new home sales – July 2011
This report shows the changes in the real estate market in July 2011 and the new home sales in the U.S.; in the previous report (June 2011), the sales of new homes fell by 1% compared with the number of new homes sold in May 2011. If this report will further show a fall in new home sales, it may indicate the further slowing down of US economy.
Euro Area flash manufacturing PMI
In the previous report the Euro zone PMI growth rate slowed to near stagnation during July as it fell from 53.3 in June to 50.8 in July. If this report will further show a slowdown it may confirm some of the speculation around an economic slowdown in Europe.
Core retails sales Canada
In the previous report for April 2011, Canadian retails sales slightly increased by 0.1% to $37.5 billion; in volume terms the sales remained unchanged. Gasoline station sales rose by 1.1%. This news could affect the Canadian dollar and consequently crude oil prices.
Current crude oil prices
Major crude oil prices are currently traded up in the European market:
The Nymex crude oil price, short term futures (September 2011 delivery) is traded at $85.73 / barrel, a $1.31/b increase or 1.55%, as of 09:51*.
The Dated Brent spot oil price inclines by $0.1/b to $108.96/ barrel as of 10:03*.
Thus, the current premium of Brent over WTI is at $23.23/b.
Crude oil price outlook and analysis:
The news from Libya didn’t seem to affect much the trade on crude oil prices; this may indicate that the speculation around fundamentals is less affecting traders than other news including changes in the US dollar and stock market. The news of the US home sales could affect trading, and probably to a lesser degree the Euro Area manufacturing PMI, and Core retail sales in Canada. If the stock markets will regain some of the falls they had recorded during recent weeks, it may also affect crude oil prices to trade up mainly WTI spot oil. In the near future, I still think that 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):
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
13:30 – US Department of Commerce – Report on core Durable Goods
15:30 – EIA report about Crude oil inventories
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.