Crude oil prices shifted from red to green as they have sharply inclined yesterday, while the U.S. and European stock markets rallied and the “risk currencies” including AUD and CAD also rebounded in recent days giving crude oil prices back-wind. Today, the European Central Bank rate decision will be announced, BOJ rate decision, EIA natural gas report will be published and U.S. Unemployment Claims report. Here’s a short analysis of the crude oil market for today, October 6th:
Crude Oil Prices – October
On Wednesday, October 5th crude oil price (WTI) sharply inclined by 5.30% to $79.68/b; Brent oil price also rose by 0.95% to $103.15/b.
The chart below shows the prices development of WTI spot oil and Brent oil in September- October (prices are normalized to 100= 31st of August) .
Premium of Brent over WTI – October Update
The premium of Brent oil over WTI spot oil sharply slipped on Wednesday to $23.47. During October, this premium declined by 6.34%.
On Today’s Agenda:
U.S. Unemployment Claims: For the week ending on September 23rd, initial claims declined by 37,000 to 391,000 claims; for the week ending on September 17th, the number of insured unemployment was 3.749 million, a decrease of 20,000 compared with the previous week’s (see here my recent review on the US Labor market);
U.S. Natural Gas Market: The EIA will publish its U.S. natural gas stocks, production and consumption report for the week ending on September 30th. In the recent report, natural gas storage rose for the twenty-fifth straight week by 3.5% or by 111 Bcf to 3,312 billion cubic feet for all lower 48 states – 0.2% above the 5-year average (see here my recent natural gas storage review);
U.S. Oil Stockpiles Declined by 4.6 Million Bbl – September 28
According to the recent EIA report regarding the U.S. crude oil market, U.S. Petroleum and crude oil stockpiles sharply fell last week by 4.6 million barrels, or by 0.26% and reached 1,770.5 million barrels. U.S. Ending Stocks of crude oil also declined by 4.6 million barrels to 1,032.2 million barrels; U.S. Ending Stocks of Total Gasoline slightly declined by 0.53%.
Crude Oil News
The speculation around the next move of OPEC rises as some consider that due to the sharp falls in the crude oil prices in recent weeks, and the expected increase in Libya’s oil production, there are those who consider that OPEC will cut its oil production. If this speculation will eventually have some merit it could affect pressure up crude oil prices again. But for now there is no evidence to support these claims.
Goldman Sachs says that major commodities prices may advance by 20% on emerging markets growth.
Forex Market and Crude Oil Prices – October
The AUD to US dollar exchange rate inclined on Wednesday by 0.91%. The USD also appreciated against the CAD. Many consider the speculation around the recent bailout plan for the European banks to be among the factors for the cautious optimism in the financial markets regarding the European debt crisis. If US dollar will continue to depreciate against these currencies, this shift may affect crude oil prices to further rise.
U.S. Stock Market / Crude Oil Prices – October
The S&P500 index also sharply inclined on Wednesday by 1.79%. 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 U.S stock markets will continue to rally as they did in recent days, they may further affect crude oil prices to recover as well from the sharp falls of September.
Current Crude Oil Prices
Major crude oil prices are currently traded up in the European market:
The Nymex crude oil price, short term futures (November 2011 delivery) is traded at $80.53/ barrel, a $0.85/b increase or 1.07%, as of 08:51*.
The Dated Brent spot oil price inclines by $1.10/b to $104.24/ barrel as of 09:01*.
Thus, the current premium of Brent over WTI is at $23.71/b.
Crude Oil Prices Outlook and Analysis:
Crude oil prices sharply inclined yesterday after the sharp falls they had endured in recent weeks. The recent rally in the U.S. and European stock markets may have helped crude oil prices to recover. Furthermore, the ongoing decline in the U.S. oil stockpiles may also suggest an increase in oil demand that may have helped crude oil prices advance. That being said, I still speculate that WTI oil price will remain around $75-$82 and Brent oil price around $100-$106 during the first week of October.
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Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – ECB conference Trichet Speaks and Euro Rate Decision
Tentative –Bank of Japan – Rate Decision
13:30 –U.S. Unemployment Claims
15:30 – EIA report on U.S. Natural Gas Market
12:00 – Canada Unemployment Rate and Employment Report
13.30 – U.S. Unemployment Rate & Non-farm Employment Report
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.