Crude oil prices sharply declined on Friday following the U.S labor report. Will this downward trend continue? The Brent premium over WTI slightly declined to $13 -$15 range. During the upcoming week there are several important reports and events that may affect the oil market including the U.S trade balance, PPI, German factory orders, Canada’s trade balance and U.S jobless claims. The most recent news is coming from France in which Hollande had won Sarkozy in the elections. This news may affect the Euro, which is strongly linked with commodities prices.
Here is an outlook and a weekly analysis on the crude oil market for the week of May 7th to 11th:
Crude Oil Prices –May
By Friday, May 4th crude oil price (WTI) decreased by 3.95% and reached $98.49/b – the lowest price since the beginning of February 2012; Brent oil price also declined by 2.44% to $113.16/b; during last week, WTI spot oil fell by 6.14% and Brent oil by 5.72%.
In the chart below are the developments in WTI and Brent oil prices during April and May (prices are normalized to March 30th). It shows how both oil prices have changed direction on Friday and sharply declined.
The gap between Brent oil and WTI spot oil slightly declined during last week, and was in the range of $13-$15 per barrel. During May the premium decreased by 0.88%.
U.S. crude oil stockpiles remained virtually unchanged last week. For the week ending on April 20th oil stockpiles reached 1,763.6 million barrels.
The upcoming report will be published on Wednesday, May 9th and will refer to the week ending on May 4th.
OPEC Monthly Report for April
This monthly update will refer to the main changes in crude oil and natural gas’s supply and demand worldwide; the report will also analyze the shifts in the production of OPEC countries during April 2012; this news may affect the direction of oil prices (See here a summary of the last April report);
According to the previous report, OPEC’s crude oil production reached 31,312 thousand bbl/d in March compared with 31,176 thousand bbl/d in February. Libya’s oil production increased again by 112 thousand bbl/d to 1,372 thousand bbl/d. The current production levels are still nearly one third below Libya’s average oil production of 1.6 million bbl/d in 2010.
The upcoming report will be published on Thursday, May 10th and will refer to April 2012.
IEA Oil Report
This upcoming report will present an updated (as of April) outlook and analysis for the global crude oil market for 2012 and 2013 (See here a summary of the previous report);
According to the previous report, the OECD industry oil inventories fell by 12.4 million bbl to 2,630 million bbl in February. The oil stockpiles are below the 5-year average for the eight consecutive months, but narrowed to 13.9 mb in February from 40.4 mb in January.
The upcoming report will be published on Friday, May 11th.
Main Oil Related News Items for the upcoming week
Monday 12:00 – German Factory orders: this news could indicate the progress of the German Economy and consequently may affect commodities prices;
Tuesday 2:30 – Australian Trade Balance: The upcoming report will pertain March 2012. In the previous report, the seasonally adjusted balance of goods and services declined to a $480 million deficit in February 2012;
Wednesday 2:30 – Australia Rate of Unemployment: the number of employed fell by 15,400 people; the number of employed slightly rose by 6,500 during March. If this trend ill continue to could affect the Australian dollar;
Thursday 13:30 –Canadian Trade Balance: this report may affect the trading of the Canadian dollar which tends to be strongly correlated with price of crude oil;
Thursday 13:30 –American Trade Balance: The American trade balance report for February 2012 the goods and services deficit decreased during the month to $46 billion.
Friday 13:30 – Canada Employment Report: the employment sharply rose by 82k. the upcoming report might affect the Canadian dollar and consequently also affect the prices of energy commodities including crude oil and natural gas prices; take into account that Canada is among the leading exporters of these commodities to the U.S (see here the recent report);
Friday 13:30 – U.S. Producer Price Index: This report will show the progress in the PPI during April 2012, i.e. the inflation rate from producers’ stand point. In the previous report regarding March this index for finished goods remained unchanged compared with February’s rate and rose by 2.8% in the past 12 months;
Forex and Crude Oil Prices –May
The EURO/USD exchange rate declined during last week by 1.29%. Furthermore, the AUD/USD also tumbled by 2.78%. There are still positive and strong linear correlations among these currencies pairs (EURO/USD, AUD/USD) and crude oil prices. If the U.S dollar will continue to appreciate against the EURO and Aussie dollar during the upcoming week, it may adversely affect crude oil prices.
Crude Oil Prices Outlook and Analysis:
The Brent premium over WTI oil slightly declined; the recent downward trend in the Brent premium might continue especially if the upcoming IEA report will present an increase in OECD’s oil stockpiles which will signal the oil market in Europe is loosening up. But more importantly is the oil market’s reaction to the U.S employment report was very promptly and severally. This goes to show how strong the oil market reacts to the economic progress in the U.S economy.
In the upcoming week the U.S trade balance and PPI reports will be published. These reports will show the developments in U.S economy and may affect energy commodities prices; if these reports will be positive and meet expectations then they might positively affect oil prices; the recent news of the French elections in which Hollande won the elections over Sarkozy may affect the Euro, which strongly linked with oil prices. If the U.S stock market will continue to trade down this may adversely affect crude oil prices. Finally, if major currencies including EURO and Aussie dollar will continue to depreciate against the U.S. dollar, then they may also drag down crude oil prices.
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