Crude oil prices recorded yesterday their sharpest fall since the beginning of May; currently crude oil prices are traded with small changes. Today, the US labor report will be published, along with the Canadian employment report and Canadian building permits.
Here’s a short analysis and outlook of the crude oil market for today, August 5th:
Crude oil prices –August
On Thursday, August 4th crude oil price (WTI) very sharply declined by 5.77% to $86.63/b; this is the fifth straight business day in which crude oil prices were traded down and the sharpest fall since May 5th when the US dollar appreciated against the Euro by 1.94%.
Brent oil price also sharply fell by 4.96% to $107.36/b; during August Brent oil declined by 7.39%.
The chart below presents the prices of WTI spot oil and Brent oil during July and August. It shows the sharp falls of crude oil prices mainly during the first week of August.
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 declined on Thursday August 4th to $20.73/b; during August this premium rose by 2.37%, mainly because WTI spot oil price declined at a sharper rate than Brent oil price did.
S&P500 / crude oil prices – August update
The S&P500 along with other stock indexes from around the world fell very sharply yesterday over the concerns of US falling into a double dip recession. Currently major stock indexes continue to trade down including S&P500 Dow Jones and NASDAQ; this reaction dragged along with it all major commodities including crude oil. The correlation between oil prices and S&P500 isn’t reliable but is usually strong; yesterday the falls in the stock markets may have also dragged along with them major commodities. The chart below shows the changes in S&P500, crude oil price during August (normalized to July 29th=100).
U.S employment report
Last month the U.S. employment report showed that the labor force rose at a much slower pace than in the past few months, as the number of non-farm employees increased during June by only 18,000 compared with an increase of 25,000 during May. The current expectations are that this trend will continue in July; if this will be the case and we are headed towards another disappointing US labor report, this will indicate that the progress of the US Economy is slowing down which might also curb the US’s demand for crude oil.
Canada employment report
The employment in June rose by 28,000; this was the third straight month employment rose. If this report will continue show an additional improvement in the labor report in Canada in July, this might further strengthen the Canadian dollar and consequently might also affect the prices of major commodities that Canada export to the US such as crude oil;
Canada building permits:
During May the total value of the building permits rose by 20.9% to $6.4 billion compared to April. This measure fluctuates very sharply from month to month. If this measurement will continue to rise in the upcoming report regarding June, this may further strengthen the Canadian dollar and consequently affect the US dollar.
US dollar / Crude oil prices – August update
On Thursday, Euro to US dollar exchange rate declined by 1.61%; the Australian dollar to US dollar fell by 2.71%; this means that US dollar very sharply appreciated against major currencies; this direction was probably one of the main reasons that crude oil prices were traded very strongly down; there is a chance that the US dollar will trade down today over the publication of the US labor report; if this will be the case, it might curb some of the drop in crude oil prices. Last time, however when the US Labor repot came out on July 8th crude oil prices (WTI) were traded sharply down, while the Euro to US dollar also declined.
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*.
(* GMT)
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 sharp 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; but this recent fall is probably mostly related to the sharp strengthening of US dollar against major currencies. 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 (all times GMT):
Today
12:00 – Canada unemployment rate and employment report
13.30 – Canada building permits
13.30 – U.S. unemployment rate report & non-farm employment change
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Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.