Crude oil prices ended the week with slight declines, after they had risen for two straight days (three days for Brent oil). The shift might be related, in part, to the recent rise in the stock market, including the S&P500. Crude oil prices are currently traded with moderate rises. Today, the U.S. TIC long term purchases report will be published and the minutes of the recent Australian Monetary meeting.
Here’s a short analysis and outlook of the crude oil market for today, August 15th:
Crude oil prices –August
On Friday, August 12th crude oil price (WTI) slightly fell by 0.4% to $85.38/b; Brent oil price also fell by 0.33% to $107.34/b; during August WTI spot oil declined by 10.77%; Brent oil fell by 7.41%.
The chart below presents the price developments of WTI spot oil and Brent oil during July and August.
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil nearly didn’t change on Friday August 12th as it settled at $21.96/b; during August this premium rose by 8.44%, mainly because WTI spot oil price declined by a sharper rate than Brent oil price did. This finding suggests that the crude oil market in Europe is still tighter than in the US.
Japan GDP 2Q2011
Japan’s economy shrunk by a lower rate than the market expected. According to recent reports, Japan real GDP decreased by 1.3% in annual terms during the second quarter of 2011.The markets expectations were of a 2.7% decrease. This news is likely to boost the trading in the Nikkei. On the other hand, despite this news, there are still concerns in Japan that Moody’s will downgrade Japan’s Aa2 sovereign rating. Japan is among the leading importers of crude oil, and its economic progress could affect the global demand for oil.
US Retail sales – slight improvement in July
The U.S. Department of Commerce presented a slight improvement in the U.S. retail and food sales during July 2011. In July, the U.S. retail and food sales increased by 0.5% to $390.4 billion. The gasoline stations sales were 23.6% higher in July compared with June 2011. This report shows that the US economy continues to slightly grow; the driving season in the US drives the gas consumption up.
US TIC long term purchases – June
The Treasury International Capital report will be published today and present the main changes in the purchases and sales of US long term treasuries during June 2011.
Following the recent downgrade of US credit rating by S&P, the markets shifted direction and pushed funds to the US treasury bills.
In the previous May report 2011, the net foreign purchases inclined to $23.6 billion; the increase in purchases was mainly driven by China. In the upcoming report there might continue to be a rise in purchases.
S&P500 / crude oil prices – August update
The S&P500 along with other stock indexes ended the week with moderate rises as the markets cooled down. The correlation between oil prices and S&P500 isn’t reliable but was strong and positive in recent months including August so far; the chart below shows the price development of the S&P500 index with crude oil prices during August (priced normalized to 100 =July 29th).
Current crude oil prices
Major crude oil prices are currently traded slightly up in the European market:
The Nymex crude oil price, short term futures (September 2011 delivery) is traded at $85.63 / barrel, a $0.25/b increase or 0.29%, as of 09:16*.
The Dated Brent spot oil price inclines by $0.77/b to $108.11/ barrel as of 09:27*.
Thus, the current premium of Brent over WTI is at $22.48/b.
Crude oil price outlook and analysis:
Crude oil prices have declined very sharply during the beginning of August, but gained back some of the losses in recent days. There is still uncertainty in the financial markets that could spark an additional drop in stock markets that will drag down crude oil prices. But since the US economy shows some progress and the financial markets cooled down, it’s likely that oil prices will bounce back and gain some of the losses from recent weeks. I speculate that crude oil prices will trade around the $82-$87 mark for WTI spot oil and $105-$109 for Brent oil.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
14:00 – US TIC long term purchases
2.30 – Monetary Policy meeting Australia’s Bank
10:00– Main Europe’s economy’s GDP 2Q2011 report
13.30 – U.S. Building Permits
13.30 – U.S. Housing Starts
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.