Crude oil prices remained high even though during last week Brent oil shed 1.78% off its value and WTI declined by 1.87%. The positive news of the 3% growth of the U.S GDP during the last quarter of 2011 may have pulled up the price of oil during last week. Tornados had struck several cities throughout the South and Midwest of the U.S. during the weekend and caused severe damage and killed at least 37 people. For the time being there weren’t reports of any damages to pipelines that might affect the oil or natural gas supply.
The premium of Brent oil over WTI remained in the $16 to $18 mark. Will crude oil prices continue to decline during the upcoming week? Let’s examine the oil market and the main financial reports that may affect the path of crude oil prices.
Here is an outlook and analysis for the crude oil market for the week of March 5th to 9th:
Crude Oil Prices – March Update
On Friday, March 2nd crude oil price (WTI) decreased by 1.97% and reached $106.70/b; Brent oil price also decreased by 1.57% to $124.39/b; during last week, WTI spot oil declined by 2.55% and Brent oil by 1.78%.
In the chart below are the developments of WTI and Brent prices during February and March (prices are normalized to January 31st).
The gap between Brent oil and WTI spot oil remained in the range of $16 to $18. During February the premium sharply rose by 35.32%. The tensions between Iran and Europe including Iran’s threat to close Strait of Hormuz will probably keep the Brent premium high in the weeks to come.
During February/March the correlation between Brent oil price and WTI oil price (daily percent changes) started to rise to 0.70 – the highest leveling 2012. This means the correlation between WTI and Brent oil prices is still strong and as strong as it was during 2011. This figure coincides with the stabilization of the gap between Brent and WTI.
The standard deviations of oil prices sharply rose during February/March to their highest level since October 2011. This might indicate that both crude oil prices’ volatility has sharply increased during the passing week.
This monthly report will show the main developments in crude oil and natural gas’s supply and demand worldwide; the report will also analyze the changes in the production of OPEC countries during December; the recent fluctuations in crude oil prices might be stem, in part, from the developments in OPEC’s oil production; (Here is a summary of the recent OPEC report);
The upcoming report will be released on Friday, March 9th.
Crude Oil Stockpiles – Slightly Rose Last Week
U.S. crude oil stockpiles rose last week by only 538 thousand barrels. For the week ending on February 24th oil stockpiles reached 1,755.412 million barrels. The current oil stockpiles are still below the quota from last year: the current crude oil stockpiles are 22.214 million barrels below oil stockpiles levels recorded during the parallel week in 2011.
The upcoming report will come out on Wednesday, March 7th and will refer to the week ending on March 2nd.
Main Oil Related News Items
Monday– U.S Factory Orders: This report will refer to the changes in U.S. factory orders for December 2011. According to the last flash estimate, during January new orders of manufactured durable goods slipped by $8.6 billion to $206.1 billion;
Tuesday– Australian GDP Fourth Quarter 2011: This quarterly report will show the change in Australia’s GDP growth rate in the fourth quarter 2011. In the third quarter of 2011, the GDP grew by 1.0% in annual terms. Australia is among the leading non-OPEC countries in exporting crude oil (see here last report);
Thursday– ECB Press Conference and Euro Rate Decision: In last month’s rate decision the President of the European Central Bank, Mario Draghi kept the rate flat at 1%; as of January, the Euro Area inflation rate edged down to an annual rate of 2.7%, while the EU GDP in the fourth quarter declined by 0.3% . This means the EU economy is still slowing down. If ECB will reduce interest rates it is likely to pressure further down the Euro;
Thursday– Chinese CPI: during January, the Chinese inflation rate slightly rose to an annual rate of 4.5% (it was 4.1% in December); this rate is still close to China’s inflation target of 4% in annual terms. If the inflation will start to rise again it could induce the People Bank of China’s to take steps to slowdown the inflation; this, in turn could curb China’s economic progress; China is among the leading countries in importing commodities such as gold and oil;
Friday–American Trade Balance: This report will show the developments in imports and exports of goods and services to and from the U.S, including crude oil; The American trade balance report for December the goods and services deficit rose during the month to $48.8 billion.
Friday– U.S. Non-farm Employment Report: in the recent February report regarding January 2012, the labor market continued to improve as the number of non-farm payroll employment expanded by 243k; the U.S unemployment rate slipped to 8.5%; this report might affect not only the U.S dollar, but also commodities prices (see here my last review on the U.S employment report).
Forex and Oil Prices – February
The EURO/USD exchange rate sharply decreased during last week by 1.87%; the announcement of the LTRO loan fund may have been among the factors to drag the Euro/USD during the week. On the other hand the AUD/USD slightly rose by 0.76%. There are mid-strong and positive linear correlations among leading exchange rates (EURO/USD, AUD/USD, CAD/USD and crude oil prices; e.g. during February/March, the correlation between WTI and Euro/USD is 0.35 and between WTI and Euro/USD is 0.33). If the U.S dollar will appreciate against the EURO, Canadian dollar and Aussie dollar during the week, it may trade down crude oil.
Current Crude Oil Prices (March 5th)
Major crude oil prices are currently traded with mixed trend:
Nymex crude oil price, short term futures (April 2012 delivery) is traded at $106.84/ barrel, a $0.14/b increase or 0.13%, as of 01:08*.
Brent oil price decreases by $0.01/b to $124.37/ barrel as of 01:00*.
Crude Oil Prices Forecast and Analysis:
The premium of Brent over WTI didn’t change much during last week, but is still high. The U.S economy continues to show signs of improvement and thus may keep the WTI oil price high. The tensions between Iran and Europe will probably continue to be among the factors for the high oil prices.
In the upcoming week there are several financial reports and events that might affect crude oil prices including the U.S trade balance, ECB rate decision, U.S. non-farm payroll report and China’s CPI. If these reports will show progress, it might trade up oil. Finally, if major currencies including EURO, Canadian dollar and Aussie dollar will depreciate against the U.S. dollar, this may also adversely affect crude oil prices.
I speculate during the upcoming week, WTI oil price will trade in the range of $102-$110 and Brent oil price between $120 and $128.
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