Crude oil prices declined yesterday and currently they continue to trade sharply down. The FOMC announcement to purchase $400 billion LT securities didn’t receive a warm reaction in the financial markets as the US stock markets sharply fell. The USD also sharply appreciated against major currencies such as Euro, AUD and CAD. Today, the EIA will publish it weekly report on the natural gas market, the Euro Area Manufacturing PMI will be published, last week’s U.S. unemployment claims report and the Canada core retails sales report.
Here’s a short analysis of the crude oil market for today, September 22nd:
Crude Oil Prices –September
On Wednesday, September 21st crude oil price (WTI) declined by 1.35% to $85.75/b; Brent oil price also fell by 2.92% to $111.05/b; during September WTI spot oil fell by 3.45%; Brent oil price decreased by 4.66%.
The chart below shows the development of WTI spot oil and Brent oil prices (normalized prices 31st of August=100) during September.
Premium of Brent over WTI – September Update
The premium of Brent oil over WTI spot oil declined yesterday to $25.30. During September, this premium declined by 8.57%.
US Petroleum Stockpiles Sharply Fell Last Week5.2 Million
The US Energy Information Administration published yesterday its weekly report on the U.S. petroleum market: according to the report for the week ending on September 16th, the U.S. oil stockpiles declined by 5.2 million barrels to 1,774.0 million barrels.
US production bounced back last week; oil imports declined; crude oil refinery inputs also decreased last week.
The chart below shows the petroleum and oil stockpiles levels compared to the WTI crude oil price during 2010-2011.
FOMC to Purchase $400 billion LT Securities – No QE3
The Federal Open Market Committee decided to purchase $400 billion worth of Long Term Securities in exchange of Short Term Securities to be completed the end of June 2012. This isn’t a QE3 because there is no expansion of the Fed’s balance.
This news isn’t something earth-shattering, but isn’t a quantitative easing plan and seems to be less than the markets expected as stimulus; this might explain the sharp falls in the US and European stock markets.
Rise in US Existing Home Sales in August
According to the recent report of the Realtors’ organization the U.S. existing home sales rate rose in August 2011 by 7.7% to a seasonally adjusted annual rate of 5.03 million home sales.
On Today’s Agenda:
Euro Area Manufacturing PMI: In the last report regarding August 2011, the Euro Zone ManufacturingPMI dropped below the 50 point mark. If this report will continue to be negative, it may further pressure the Euro/USD exchange rate to decline in consequently also crude oil prices;
EIA Natural Gas Report: The EIA will publish its weekly report on U.S. natural gas stocks, production and consumption for the week of September 16th. In the previous report, natural gas storage rose by 87 Bcf to 3,112 billion cubic feet for all lower 48 states – the highest stock level since December 24th, 2011;
Canada Core Retails Sales: This report might affect the USD/CAD exchange rate. In the previous June report, Canada’s retails sales rose by 0.7% to $37.8 billion; in volume terms the sales grew during the month by 1.6%. the largest increase among sub sectors was in the motor vehicles that rose by 3.4%; gasoline station sales decreased by 1.3% during June 2011 (see here full report);
Forex Market and Crude Oil Prices – September Update
The Euro to US dollar exchange rate sharply declined on Wednesday by 0.94%; during September the Euro/USD completed a 5.54% decrease. The appreciation of US dollar against the Euro, CAD AUD seems connected with the recent sharp falls in the US stock markets and major commodities prices including crude oil prices. If this trend will continue, in which the USD will trade up, it may also affect oil prices to further trade down.
U.S. Stock Market / Crude Oil Prices – September Update
The S&P500 index sharply declined yesterday by 2.94% – this was the sharpest fall in a single day in September; during September, the S&P500 index fell by 4.28%. During September, there was a strong positive correlation between crude oil prices and S&P500 index (e.g. for WTI it was 0.561 and for Brent oil it was 0.435). If the US stock markets will continue to decline today, it may further adversely affect crude oil prices to decline as well throughout the day.
Current Crude Oil Prices
Major crude oil prices are currently traded sharply down in the European market:
The Nymex crude oil price, short term futures (October 2011 delivery) is traded at $82.30/ barrel, a $3.62/b decrease or 4.21%, as of 12:44*.
The Dated Brent spot oil price declines by $2.31/b to $108.73/ barrel as of 12:55*.
Thus, the current premium of Brent over WTI is at $26.43/b.
Crude Oil Prices Outlook and Analysis:
Crude oil prices sharply fell yesterday and today they continue this sharp decrease as the European stock markets are traded sharply down. The financial markets didn’t react well to the FOMC decision to only purchase $400 billion of LT securities with no QE3. The markets are likely to continue to drop; the USD is likely to further appreciate; and major commodities prices including crude oil prices are likely to further decline throughout the day. I speculate that WTI oil price will start to trade down towards the $80-$85 mark and Brent oil price towards $105-$110, by the end of September.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
09:00 – Euro Area Manufacturing PMI
13:30 – Canada Core retails sales
13:30 –U.S. Unemployment Claims
15:30 – EIA Natural gas storage report
19:00 – ECB conference Trichet speaks
World Bank and IMF Meeting
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.