Crude oil prices forecast for 6 April 2011

Crude oil prices didn’t do much yesterday and there is still little changes in Brent and WTI oil prices. The premium of Brent oil over WTI remains around the 10-14$/b as it did in recent weeks. Will this apparent ease in oil market continue?

Let’s examine the main news for today, April 6th that might affect the crude oil markets.

Libyan conflict – update


Libyan rebels retreated yesterday due to the heavy firing by Qaddafi’s troops from the central oil port of Brega. The rebels blame NATO troops for not doing enough to stop Qaddafi’s troops’ attacks.

NATO is still trying to end the Libya conflict between Qaddafi and the rebels by reaching diplomatic solution. Diplomats from the U.K. were reported to head to the rebels’ city of Benghazi, to meet with rebels’ leaders.

Crude oil prices March 2011 Brent oil and WTI spot oil 6 April

Petroleum stocks in the US

Today the EIA will publish its weekly report on petroleum stocks: The current speculations are that US crude oil stocks will rise by 0.3%, compare to previous week. In the previous weekly report US petroleum stocks rose for the first time since the week of February 4th 2011 by 0.2%, an increase of 3.3 million barrels of crude oil to reach 1,768 million barrels (For the previous petroleum report, see here).

Japan’s energy imports

Japan hasn’t recovered yet from the nuclear disaster in Fukushima and the situation there isn’t stable yet.  It’s reported that Japan did manage to stop the leak of the radioactive water from core reactor number 2. The engineers will try to inject nitrogen to prevent any explosions in the cores.

In the mean time, China assisted Japan in its energy shortage by shipping, last week, 20,000 tons of fuel oil.

At the current price levels of crude oil, Japan is likely to rely more on natural gas than crude oil (see here an analysis about Japan’s energy outlook).

In the chart below is the ratio of crude oil to natural gas:


WTI spot oil price and Henry Hub spot prices 2010-2011 April 6

Its shows that in the past two years the current ratio is at a very high level, and even if I will further back, except for the year 2008, when crude oil prices soared, the current ratio is at a highest level in over a decade.

Let consider oil prices in terms of natural gas prices, i.e. convert oil prices from barrels to MMBtu:

Since current crude oil prices are well over 100$/b, while natural gas prices are roughly at 4.2$/mmbtu. Using the convert rate of 5.8 for MMBtu to barrel (i.e. one oil barrel is equal, in energy terms, to 5.8 MMbtu), then crude oil prices, in terms of MMbtu, are at 17$/MMbtu, which is over four times higher than the current natural gas prices. This ratio is also very high in historic terms (in the past decade the average price of oil was 9$/MMbtu).

Therefore, assuming Japan will also consider the current high oil prices, if possible, it will probably rely more on natural gas than crude oil. This might ease on the pressure of crude oil prices from rising in the near future (all things being equal of course).

China raised its interest rate

The peoples’ Bank of China decided to raise its basic interest rate by 25 basis points to 6.31%. This is the second interest rate raise this year. This decision was taken in order to curb China’s rising inflation, but it might also adversely affect its demand for commodities, such as natural gas and crude oil. If it will have such an affect, it will be felt in the upcoming months.  

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 108.47 USD / barrel, a 0.13 USD/b increase or 0.12%, as of 08.58*.

The Dated Brent spot crude oil is at 122.07 USD / barrel – a 0.71 USD/ barrel increase as of 09.09*.

(* GMT)

Thus, the current premium of Brent over WTI is at 13.6$/b.

Crude Oil price outlook and analysis:


Crude oil prices will continue to show little to no change as the day will progress, as the risk premium is already added to the oil market. The risk is related to the slowdown in oil production in Libya, and the adverse effect the tsunami attack in Japan caused to the financial markets.

I still think that oil prices are high, but they will remain at their current price level in the short term and will moderately fluctuate with no clear direction as they did in the past week.

Difference between Brent oil and WTI spread: Yesterday, April 5th, the gap between Brent oil and WTI continue to widen as it reached 13.02$/b. This premium remained around the 10 and 14$/b in the past month as seen in the chart below. I still think that it will remain in the near future around this range.


Difference between Brent and WTI crude oil price 2011 6 April

Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):


14.30 – Australian Bureau of Stat. will publish the unemployment rate

15.30 – EIA report about Crude oil inventories


13.30 – Department of Labor report – US unemployment claims

13.30 – ECB president’s speech

15.30 – EIA report about Natural gas storage



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