There are still concerns over the markets’ reaction to the news that came over the weekend of Standard and Poor’s downgrading the US credit rating; currently the markets in the US demonstrate falls (as expected). In Europe, ECB is likely to purchase Italian and Spanish bonds in an attempt to cool down the markets’ anxiety . In any case, the oil prices continue to show sharp falls. Today, the Chinese inflation rate for July will be published.
Here’s a short analysis and outlook of the crude oil market for today, August 8th:
Crude oil prices –August
On Friday, August 5th crude oil price (WTI) bounced back from the sharp falls on Thursday and inclined by 0.29% to $86.88/b; this is after for five consecutive business days crude oil prices were traded down.
Brent oil price also rose by 2.24% to $109.76/b; during August Brent oil declined by 5.32%; WTI spot oil fell by 9.2%..
The chart below presents the normalized prices (July 29th =100) of WTI spot oil and Brent oil during August. It shows the sharp falls of crude oil prices during the first week of August.
The linear correlation of WTI and Brent oil prices (daily percent changes) is still robust and currently stands at 0.948 during 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, even though it started to pick up again and rose on Friday August 5th to $22.88/b; during August this premium rose by 12.99%, 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 during last week mainly on Thursday. Currently there are expectations that the falls will resume in the US stock market; if this will be true it may further pull down major energy commodities prices including crude oil prices. The correlation between oil prices and S&P500 isn’t reliable but in August so far was very strong as seen in the chart below, which indicates that the falls in Wall Street are affecting the crude oil traders.
Chinese inflation rate
The ongoing rising inflation in China is likely to affect People Bank of China’s monetary policy as it will try to curb the rising prices; last month the PBC raised its interest rate; the consumer price index is still above the China’s inflation target of 4% in annual terms, as it reached in June 2011 6.4%; if PBC will raise rates and restrictions it could curb the growth of China’s economy and consequently curb the demand for crude oil.
US dollar / Crude oil prices – August update
On Friday, Euro to US dollar exchange rate inclined by 1.34%; the US dollar to Yen fell by 0.62%; this means that US dollar very sharply depreciated against major currencies; this direction is inline with the moderate rises of crude oil prices on Friday; there is a chance that the US dollar will trade down today; if this will be the case, it might curb some of the drop in crude oil prices. In the chart below are the correlations between oil prices and major exchange rates. Major currencies are strongly correlated with crude oil prices.
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 (September 2011 delivery) is traded at $83.87 / barrel, a $3.01/b decrease or 3.46%, as of 11:51*.
The Dated Brent spot oil price declines by $4.00/b to $105.76/ barrel as of 12:01*.
Thus, the current premium of Brent over WTI is at $21.89/b.
Crude oil price outlook and analysis:
Crude oil prices have experienced a sharp downward trend in recent days as the stock markets in the US also registered sharp falls; these sharp falls in the oil market are less likely to be connected to the changes in supply and demand mainly due to the sharp and prompt reaction of the market that is in sync with the falls of S&P500. I speculate that crude oil prices will continue to come down and will settle around the $80-$85 mark for WTI spot oil and $100-$105 for Brent oil.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
3.00 – Chinese CPI
OPEC monthly report
13:15 – Canadian Housing Starts
17:30 – Decision on Federal Reverse’s Interest Rate
For further reading:
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.