Crude oil prices started October the same way they had ended September – falling. The weak performance of the U.S. and European stock markets and the “risk currencies” e.g. AUD and CAD are likely to keep crude oil prices low. Currently, crude oil prices are traded down. Today, the RBA will announce its Cash Rate Decision, and ECB President Trichet and Fed Chairman Bernanke will testify. Here’s a short analysis of the crude oil market for today, October 4th:
Crude Oil Prices – October
On Monday, October 3rd crude oil price (WTI) sharply fell by 2.01% to $77.61/b – the lowest price level in 2011; Brent oil price also declined by 306% to $101.07/b; since the middle of September (until yesterday –October 3rd WTI spot oil fell by 1319% and Brent oil price by 13.07%.
The chart below shows the prices development of WTI spot oil and Brent oil in the past three months – August up to October 3rd.
Premium of Brent over WTI – October Update
The premium of Brent oil over WTI spot oil sharply slipped on Monday to $23.46. During the last couple of week, this premium declined by 6.38%.
On Today’s Agenda:
RBA –Rate Decision: as expected the overnight interest rate of Australia’s Reserve Bank was left unchanged at 4.75%; this decision won’t hold back the AUD-USD from further falling (see here previous report);
ECB President Trichet speaks: before the ECB announcement of its rate decision on Thursday, the European Cerntal Bank President Trichet will give a speech that might hint into ECB’s rate decision. Trichet will probably also refer to the recent decisions of European policymakers to increase the EFSF funds;
Bernanke Testifies: following the announcement of FOMC plan to purchase LT securities and to sell ST securities to conclude by June 2012, the Federal Reserve Chairman is likely to address the stability and progress of US economy;
Forex Market and Crude Oil Prices – October
The Euro to US dollar exchange rate sharply declined on Monday by 1.58%. The USD also appreciated on the first day of October against the AUD, and CAD which are historically strongly related to daily percent changes in crude oil prices. Many consider the high speculation around the Greek debt crisis to be among the major factors to keep the “risk currencies” such as AUD, CAD and EURO weak against the USD. If US dollar will continue to appreciate against these currencies, they may affect crude oil prices to fall.
U.S. Stock Market / Crude Oil Prices – October
The S&P500 index also sharply declined on Monday by 2.85%. During September, there was a strong positive correlation between crude oil prices and S&P500 index (e.g. for WTI it was 0.665 and for Brent oil it was 0.543). If the US stock markets will continue to decline as they did in recent days, they may further affect crude oil prices to decline as well.
Yesterday, the September report for U.S. Manufacturing ISM index reached 51.6% a growth rate inclined from 50.6% in August to 51.6% in September i.e. a one percent points incline. This means that not only the U.S. manufacturing sector is growing but also, it grows at a faster pace in September compared to August.
Current Crude Oil Prices
Major crude oil prices are currently traded down in the European market:
The Nymex crude oil price, short term futures (November 2011 delivery) is traded at $76.36/ barrel, a $1.25/b decrease or 1.61%, as of 11:38*.
The Dated Brent spot oil price declines by $0.21/b to $100.85/ barrel as of 11:38*.
Thus, the current premium of Brent over WTI is at $24.49/b.
Crude Oil Prices Outlook and Analysis:
Crude oil prices started October the same way they closed September – falling. The ongoing weak performance of the US and European stock markets and the fall of the Euro, CAD and AUD against the USD will probably keep the crude oil prices falling. I speculate that WTI oil price will remain around $75-$82 and Brent oil price around $100-$106 during the first week of October.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
5:30 – Reserve Bank of Australia – Cash Rate Decision
14:00 – ECB conference Trichet speaks
15:00 – Bernanke Testifies
15:00 – U.S. ISM Non-Manufacturing PMI
15:30 – EIA Report on Crude Oil Stockpiles
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.