Crude oil prices plummeted during last week to their lowest levels in 2012. The disappointing U.S reports including the lower than expected growth in U.S employment may have contributed to the revised down expectations of demand for oil in the U.S. The ongoing debt crisis in Europe and the concerns regarding another economic slowdown in China may have contributed to the descent of oil prices. The Brent premium over WTI slightly fell to $15-$16 range. During the upcoming week there are several publications and events that may affect oil rates including the U.S trade balance, China’s CPI, ECB rate decision, Bernanke’s testimony and U.S jobless claims.
Here is an outlook and a weekly analysis on the crude oil market for June 4th to June 8th:
Oil Prices – May/June
By Friday, June 1st crude oil price (WTI) tumbled down by 3.81% and reached $83.23/b – the lowest rates since October 2011; Brent oil also plunged by 3.2% to $98.81/b; during last week, WTI spot oil declined by 8.2% and Brent oil by 8.47%.
In the chart below are the developments in WTI and Brent oil prices during May (prices are normalized to April 30th). It show how both oil prices have plummeted during most of the month (UTD).
Premium of Brent over WTI –May/June
The difference between Brent oil and WTI spot oil slightly fell during last week, and was in the range of $15-$16 per barrel. During May the premium rose by 5.07%.
Standard Deviation
The standard deviations of both WTI and Brent oil prices sharply increased during May compared to the previous months. This means the volatility of both energy prices has risen in May to their highest level in two years.
Oil Stockpiles –Rose by 5.5Mb
U.S. crude oil stockpiles increased again last week by 5.5 million bl. For the week ending on May 11th oil stockpiles reached 1,776.5 million barrels.
The upcoming report will be published on Wednesday, June 6th and will refer to the week ending on June 1st.
Main Oil Related News Items for the upcoming week
Monday 15:00 – U.S Factory Orders: This report will offer some insight to the growth of the U.S economy and could affect USD;
Tuesday 11:00 – German Factory orders: this news could indicate the progress of the German Economy and consequently may affect commodities traders; last time, the orders sharply rose by 2.2%;
Wednesday 12:45 – Euro Rate Decision: ECB might consider remaining on the sidelines until the uncertainly will decline and keep its policy unchanged; nonetheless, if the ECB will make a change, it may affect the Euro/USD;
Thursday 13:30 – U.S. Jobless Claims: in the latest update the jobless claims rose by 10k to 383,000; this upcoming weekly report may affect commodities rates;
Thursday 15:00 – Bernanke’s Testimony: Following the recent U.S employment report many think this will trigger the Fed to lean towards another stimulus plan. The Chairman of the Federal Reserve will testify before the U.S Senate. If Bernanke’s will consider the recent U.S economic developments as a turn for the worst it could signal that the Fed might consider another monetary intervention;
Friday 13:30 –American Trade Balance: This report will present the changes in imports and exports of goods and services to and from the U.S, including crude oil; according to the recent American trade balance report regarding March 2012 the goods and services deficit increased during the month to $51.8 billion.
Friday 3:30 – Chinese CPI: during April, the Chinese inflation rate slightly declined to an annual rate of 3.4%. If the inflation will continue to decline it could indicate that China’s economic progress is slowing down; China is among the leading countries in importing oil;
Forex and Crude Oil Prices –May/June
The EURO/USD exchange rate continued to decline last week by 0.66%. Furthermore, the AUD/USD also fell by 0.59%. There are still positive correlations among these exchange rates (EURO/USD, AUD/USD) and oil rate. If the U.S dollar will continue to appreciate against the EURO and Aussie dollar, it may further pull down oil prices.
Oil Prices Outlook and Analysis:
The Brent premium over WTI oil slightly declined last week but both oil rates have fell by similar rates so that the difference between the two rates hasn’t changed much. I suspect the Brent premium will slowly decline as the oil market in the Europe is further loosening up. The fundamentals (from both the demand and supply sides) point out that oil market will continue to loosen up. But following such a sharp tumble in oil during last week, I speculate oil prices might balance out during the upcoming week (assuming all things equal).
In the upcoming week the U.S reports including trade balance and factory orders will presents the recent changes in U.S economy and may affect commodities rates; if these reports’ figures won’t meet expectations then they may adversely affect oil prices. If the U.S stock market will continue to trade down this may also adversely affect oil prices. On the other hand, if Bernanke will hint of another stimulus plan it could help rally oil prices. Finally, if major exchange rates including EURO and Aussie dollar will depreciate against the U.S. dollar, then they may also drag down oil prices.
I speculate during the following week, WTI oil price will trade between $80 and $86 and Brent between $95 and $102.
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