The reverse the oil prices took yesterday as they declined after they increased on Friday, might have something to do with the recent Goldman Sachs report, according to Reuters, as GS advised to “lock-in trading profits before oil and other commodity markets reverse.”
Despite the recent two days high fluctuations, the current oil prices don’t show much of a change, will this trend last?
Let’s examine the main news for today, April 12th that might affect the crude oil markets.
Libyan conflict – update
The ceasefire plan was reported to be rejected by the Rebels. The rebels said they won’t accept a ceasefire offer without an assurance the Qaddafi and his sons won’t remain in Libya.
It was claimed that Qaddafi agreed to the terms of the ceasefire plan, which was comprised by the Africa Union.
The fighting between the rebels and Qaddafi’s troops continue.
The Libya’s oil production has declined to near a halt and there are some estimates that the current Libyan oil production is less than a quarter of its normal output, which was before the conflict started 1.65 million bbl/d.
Japan’s rising oil imports
The ramifications of the tsunami attack on Japan in the energy market is starting to show: Bloomberg reported that there was a 59% rise in oil tankers to Japan. Due to the shutdown of 11 out of 54 nuclear reactors, there is a rise in demand for imports of natural gas and crude oil.
Russia is considering augmenting its crude oil export to Japan, compared to last year’s exports, as part of its disaster relief assistance.
This rise in demand for crude oil might have an effect on the oil market as Japan’s imports will increase.
Crude oil price during April – is it because of Euro/USD?
The rally of oil prices might be related in part to the Euro/USD as seen below:
As seen in the chart above, the current correlation of the daily percent changes between EURO/USD and Oil prices (WTI and Brent) is high and is at 0.697 for WTI oil and 0.5 for Brent oil. In the previous months there was a low correlation but it has rising since the beginning of the year.
The April correlations should be noted by an asterisk, because there were only 7 business days during April, so far, so the significance of these figures isn’t strong. As the month will progress it will be interesting to check if this relation between Euro/USD and oil prices will remain high.
Current crude oil prices
Major oil prices are traded in the European markets with moderate rises:
The Nymex crude oil price, short term futures (May 2011 delivery) is traded at 110.13 USD / barrel, a 0.21 USD/b increase or 0.21%, as of 11.03*.
The Dated Brent spot crude oil inclines by 1.93$/b and it is at 124.95 USD / barrel as of 11.13*.
Thus, the current premium of Brent over WTI is at 14.82$/b.
Crude Oil price outlook and analysis:
I still think that oil prices are at a high level vis-à-vis to the current effect of the demand and supply forces have on them.
Thus, it’s likely that most of the recent rise in oil prices is related to speculation around the current and even more so the future effect recent events in the Middle East and the tsunami attack on Japan have on the energy markets.
Nonetheless, until the uncertainty will clear up from these events, crude oil prices will remain high, and in the short term, all things being equal, they will show moderate fluctuations, with no clear trend as the week will progress.
Difference between Brent oil and WTI spread: as of yesterday, April 11th, the premium of Brent oil over WTI has declined to 13.11$/b.
I still think that this premium will remain around the 10 and 15$/b in the near future, as it has been in the past month as seen in the chart below:
Notice that during February when the turmoil in Libya had begun, the variance of the gap between Brent oil and WTI was at a record high of 9.85. Since then the variance has been declining and is currently around 1.72.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13.30 –Canadian Trade balance
13.30 – Report on American Trade balance
15.30 – EIA report about Crude oil inventories
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