Crude oil prices ended the week with sharp falls over the appreciation of the US dollar and the decline of US stock markets. The concerns over a Greek debt default may continue to affect trading and uncertainty in the financial markets. Today, the OPEC monthly report will be published and the Australian trade balance report. Here’s a short analysis of the crude oil market for today, September 12th:
Crude oil prices –September
On Friday, September 9th crude oil price (WTI) sharply fell by 2.03% to $87.24/b; Brent oil price also declined by 1.80% to $112.24/b; during September WTI spot oil declined by 1.77%; Brent oil fell by 3.64%. The chart below shows the normalized prices of WTI spot oil and Brent oil during Mid August up to date (August 31st =100).
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil continues to decline from the high level it had reached a few days back. The premium reached on Friday $25.00. During September, this premium fell by 9.65%. I explain the reasons for the large gap between Brent oil and WTI spot oil herein.
On Today’s Agenda:
Will there be a Greek default?
One of the main questions that are asked in recent days is whether the Greeks default on their debt. The speculation around this issue continues to run high. There are those who speculate that Germany is already getting ready for a 50pc haircut on Greek debt. In the mean time, these concerns are driving the Euro down along with other currencies and consequently pull gold and silver prices down as well. If the speculations around the threat of a Greek default will continue, it may further affect crude oil prices to trade down in the short run, until this issue will be resolved or confirmed.
Australian trade balance report: this report will show the changes in the seasonally adjusted balance of goods and services during July.
OPEC monthly report: today, the OPEC monthly report will be published and will present the main changes in the OPEC production during August. If the OPEC production further inclined, it may suggest that the oil market continues to loosen resulting in an expected decline in crude oil prices.
US Dollar / crude oil prices – September update
The Euro to US dollar exchange rate sharply fell on Friday by 1.63%; during September the exchange rate fell by 5%. The depreciation of US dollar against the Euro over the Greek debt crisis seems to affect major commodities prices including crude oil prices, especially WTI oil price. The US dollar also sharply depreciated during September against other major currencies including Australian dollar and Canadian dollar – two currencies that are usually strongly linked to the crude oil prices. If this trend will continue, it may further affect oil prices to trade down during the week.
S&P500 / crude oil prices – September update
The S&P500 index ended last week with a sharp drop of 2.67%. During September, the S&P500 index declined by 5.30%. Furthermore, in September the correlation between oil prices and S&P500 was 0.916 for Brent oil and 0. 976 for WTI spot oil. Even though there are few samples so that the results aren’t statistically significant, they due present a clear picture that the relation between the US stock market and oil market is very strong and as the US stock market falls, so do crude oil prices.
Current crude oil prices
Major crude oil prices are currently traded with mixed trends in the U.S. market:
The Nymex crude oil price, short term futures (October 2011 delivery) is traded at $88.71/ barrel, a $1.47/b increase or 1.69%, as of 19:36*.
The Dated Brent spot oil price declines by $0.11/b to $112.12/ barrel as of 19:47*.
Thus, the current premium of Brent over WTI is at $23.41/b.
Crude oil price outlook and analysis:
The US stock market indexes declined on Friday along with the major currencies against the USD such as the Euro and AUD. Crude oil prices soon followed and sharply declined as well. This trend is likely to continue throughout the week. On the other hand, the decline in oil prices might be stronger in Brent oil than WTI oil price resulting in reducing the gap between Brent oil and WTI spot oil. In the near future, I still think WTI oil price will remain around $85-$90 mark and Brent oil around $108-$112, but throughout the month crude oil prices are likely to moderately decline.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
2:30 – Australian trade of Balance
9:00 – FOMC Member Mr. Richard Fisher Speaks
13:30 – US import prices (m-2-m)
19:00 –US Federal Budget Balance
2:30 – Australian housing starts (Q-2-Q)
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.