Crude oil prices slightly rose during last week and thus continued their trend of moderate changes of recent weeks. What should we expect for crude oil prices in February? Let’s examine the oil market the main news items and events that may affect the direction of crude oil prices in the days to come.
Here’s a forecast and analysis of the crude oil market for the week of January 30th to February 3rd:
Crude Oil Prices – January Update
On Friday, January 27th crude oil price (WTI) slightly fell by 0.14% to $99.56/b; Brent oil price on the other hand increased by 0.40% to $110.72/b; during last week, WTI spot oil rose by 1.12% and Brent oil price by 0.99%.
In the chart below are the changes of WTI and Brent prices during January (prices are normalized to December 30th). The chart shows the sharp increase in the first few days of the month and the slow downward trend that followed.
The gap between Brent oil and WTI spot oil didn’t change much during last week and reached on Friday to $11.16. During January the premium sharply rose by 27.54%.
During January the correlation between Brent oil price and WTI oil price (daily percent changes) was still strong and positive. This means that the relation between WTI and Brent oil prices is still strong and tight.
The standard deviation of the prices of crude oil has been falling in recent months as in the chart below; this finding suggests that the fluctuations in Brent and WTI oil prices have subsided.
U.S. ISM Manufacturing PMI: During December the index rose to 53.9% a 1.2 percent point gain; this index might affect oil market (see here my review of last report);
China Manufacturing PMI: during December the Manufacturing PMI increased to 50.3; this index indicates the changes in the growth rate of China’s manufacturing sectors; if this trend will continue, this might also positively affect prices of oil;
U.S Factory Orders: according to the recent flash report, in December new orders of manufactured durable goods Non-defense new orders for capital goods increased; if this direction will continue it might positively affect oil prices.
U.S. non-farm payrolls: in December, the labor market showed improvement as the number of non-farm payroll augmented by 200k (see here my last review on the U.S employment report);
Crude oil Stockpiles – Rose Last Week
U.S. Petroleum and crude oil stockpiles rose during last week by 4.2 million barrels and reached 1,743.4 million barrels. The current oil stockpiles are still below oil stockpiles levels recorded during the same week in 2011.
The upcoming report will come out on Wednesday, February 1st and will refer to the week ending on January 27th.
Forex Exchange Rates and Oil Prices – January
The EURO/USD exchange rate sharply increased during last week by 2.23%; the AUD/USD also augmented by 1.66%; I speculate the positive correlation between crude oil prices and Euro/ U.S dollar will keep affecting the direction of oil prices. If the U.S dollar will further depreciate against the Euro and Australian dollar during the week, it might also pressure up crude oil prices.
U.S. Stock Market / Crude Oil Prices – January
The S&P500 index nearly didn’t change during the fourth week of January as it rose by 0.07% to reach 1,316 on Friday; during recent months there were strong positive correlations between crude oil prices and S&P500 index (e.g. during January the correlation with WTI oil price was 0.636 and with Brent oil 0.459). The chart presents the linear correlations between oil prices and S&P500 index 2011-2012.
I speculate, if the American stock market indexes will continue to trade up, this will help crude oil price to rise.
Crude oil prices only moderately changed during last week. I suspect there are two opposite forces that have the potential to affect the direction of oil prices: from the demand side, the negative projection of the EU countries growth rate and stability in 2012 that might affect their demand for oil. From the supply side, the tensions between Iran and the West. These two forces can pull oil prices in different directions. For the time being, however they don’t seem to affect the oil market.
In the upcoming week there are several news items that might influence the crude oil market including the U.S. non-farm payroll report, U.S. factory orders and China’s manufacturing PMI. Finally, if major currencies including EURO and Australian dollar will appreciate against the U.S. dollar, this may positively influence crude oil prices.
I speculate that during the last week of January, WTI oil price will continue to trade in the range of $97-$103 and Brent oil price between $107 and $113.
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