Crude oil prices continued to fall for the fourth straight day, but will this trend continue? Today, the Bank of Japan announced it will expanded its monetary easing plan (USD/JPY reacted and hiked up); ECB will announce its rate decision, the US department labor will publish its US unemployment claims for last week and the EIA will publish its weekly natural gas report.
Here’s a short analysis and outlook of the crude oil market for today, August 4th:
Crude oil prices –August
On Wednesday, August 3rd crude oil price (WTI) declined by 1.97% to $91.93/b; this is the fourth straight business day in which crude oil prices were traded down.
Brent oil price also fell by 2.64% to $112.96/b; during August Brent oil declined by 2.56%.
The chart below presents the normalized prices (July 29th=100) of WTI spot oil and Brent oil during August. It shows the fall of crude oil prices mainly during June, the upward trend during the first week of July and stability of crude oil prices since then with a moderate downward trend.
Premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil continues to remain near the 20-22 dollar mark, as it inclined on Wednesday August 3rd to $21.03/b; during August this premium rose by 3.85%, mainly because WTI spot oil price declined at a sharper rate than Brent oil price did.
US Petroleum stocks fell by 1.94
The US Energy Information Administration published yesterday its weekly report on the U.S. petroleum market: according to the report the U.S. Petroleum and oil stocks declined during last week by 1.94 million barrels and reached 1,807 million barrels (See here the recent petroleum report).
The chart below shows the stability of WTI spot oil price during the past few weeks and the stocking up of petroleum and oil stocks as part of a seasonality effect.
BOJ expanded monetary policy
The Bank of Japan announced it will expand its plan to purchase assets, by an additional 10 trillion yen (roughly $126 billion) from 40 trillion yen to 50 trillion yen. This means that the BOJ will further “print Yen” which will reduce its value compared to other major currencies including US dollar. This news had an immediate reaction in the forex market as the USD to Yen exchange rate rose very sharply; its currently traded at 79.5730 as of 13:19 (GMT) which is an increase of 3.2608%. This shift is likely to further strengthen US dollar against other currencies and might also have a negative effect on crude oil prices, as it might further pull down crude oil prices.
US dollar / Crude oil prices – August update
On Wednesday, Euro to US dollar exchange rate inclined by 0.84%; the Australian dollar to US dollar fell by 0.22%; this means that US dollar had a mixed trend yesterday with major currencies; but currently the US is strongly traded up against major currencies mainly against the Japanese Yen over the recent monetary easing plan the BOJ announced; this likely to adversely affect crude oil prices and trade them further down.
Current crude oil prices
Major crude oil prices are currently traded down in the European market:
The Nymex crude oil price, short term futures (September 2011 delivery) is traded at $90.89 / barrel, a $1.04/b decrease or 1.13%, as of 12:57*.
The Dated Brent spot oil price declines by $1.11/b to $111.84/ barrel as of 13:09*.
Thus, the current premium of Brent over WTI is at $20.95/b.
Crude oil price outlook and analysis:
Crude oil prices have experienced a downward trend in recent days as the concerns over the economic progress of the US might affect its demand for crude oil; from the supply side, there are speculations that OPEC (mainly Saudi Arabia) raised its output during July; and finally, during the last couple of days the US dollar has strengthened against major currencies which also causes crude oil prices to trade down. These aspects might be the driving force for crude oil prices’ decline during the last few days; I speculate that crude oil prices will still remain high but will settle at a lower price level than in the past couple of weeks with WTI spot oil reaching $88-$92 mark and Brent oil reaching $108-$111.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
Tentative – Bank of Japan – rate decision and monetary policy statement
13:30 – ECB conference Trichet speaks and Euro rate decision
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Natural gas storage
12:00 – Canada unemployment rate and employment report
13.30 – Canada building permits
13.30 – U.S. unemployment rate report & non-farm employment change
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.