Crude oil prices didn’t move much during last week as the WTI oil price edged up while Brent oil price declined; as a result, the Brent premium over WTI declined from its $17-$18 range to the $15 neighborhood. Will this slow paced movement continue during the upcoming week? There are several important reports that will come out during the week that may affect the oil market including the U.S GDP, retail sales, FOMC meeting (statement), Canada’s retail sales and U.S jobless claims.
Here is an outlook and a weekly analysis on the crude oil market for the week of April 23rd to 27th:
Crude Oil Prices – April Update
On Friday, April 20th crude oil price (WTI) rose by 0.76% and reached $103.05/b; Brent oil price also increased by 0.92% to $118.52/b; during last week, WTI spot oil edged up by only 0.21% while Brent oil declined by 2.52%.
In the chart below are the developments in WTI and Brent oil prices during April (prices are normalized to March 30th). It shows how Brent oil declined during the month, while WTI oil price didn’t change on a monthly scale.
Premium of Brent over WTI – April Update
The difference between Brent oil and WTI spot oil declined again during last week, and was in the range of $14-$15.5 per barrel. During April the premium decreased by 25.59%.
During April the correlation between Brent oil price and WTI oil price (daily percent changes) remained high at 0.75. This means the correlation between WTI and Brent prices is still robust and strong despite the different direction both energy prices took during the month.
Standard Deviation
The standard deviations of oil prices slightly increased during April compared with March’s figures. Nevertheless, the April standard deviations are still well below the high levels recorded at the beginning of the year.
U.S. Stock Market / Crude Oil Prices – April
The S&P500 index slightly rose during last week by 0.6% to reach 1,378 on Friday; during April there was a strong and positive correlation between crude oil prices and S&P500 index; the correlation of the S&P500 index with WTI oil price reached 0.772 and with Brent oil 0.631 – their highest level in 2012.
I speculate if the American stock market indexes will continue to rise, this will also coincide with the rally of crude oil prices.
Crude Oil Stockpiles –Edged Down Last Week
U.S. crude oil stockpiles declined last week by 2.2 million barrels. For the week ending on April 13th oil stockpiles reached 1,763.629 million barrels.
The upcoming report will be published on Wednesday, April 25th and will refer to the week ending on April 20th.
Main Oil Related News Items for the upcoming week
Monday 3:30– China flash Manufacturing PMI: in February the Manufacturing PMI edged down to 48.1; this index indicates the changes in China’s manufacturing sectors growth rate; if this upward trend will continue, this may also positively affect energy commodities prices;
Monday 09:00 – Euro Area Manufacturing PMI (April 2012): In the last flash report regarding March 2012, the Euro Zone Manufacturing PMI declined to 48.7, i.e a contraction;
Tuesday 15:00 – U.S Consumer Confidence: according to the previous report, the consumer confidence index decreased in March (M-o-M); this report might affect commodities market especially the natural gas market;
Wednesday 13:30 – U.S Core Durable Goods: This monthly update will examine the developments in U.S. orders of durable goods in the manufacturing sector during March 2012. This report may indirectly present the developments in U.S. demand for commodities including crude oil. According to the previous report for February 2012, new orders rose by $4.5 billion; if this report will continue to be positive then it could strengthen the US dollar;
Wednesday 17:30 – FOMC Meeting (Statement): The FOMC will convene for the third time this year and will decide over a two day of meetings on the its interest rate and monetary policy; since the U.S’s economic progress is still moving up (e.g. the U.S labor market and U.S GDP are still growing), I speculate there won’t be an announcement of another stimulus plan;
Thursday 13:30 – U.S. Department of Labor– Jobless Claims Weekly Update: ; in the previous update the jobless claims edged down to 386,000; this upcoming weekly report may affect the direction of energy commodities prices;
Friday 13:30 – First U.S GDP 1Q 2012 Estimate: In the fourth quarter of 2011 the GDP growth rate reached 3%. The current expectations are that the growth rate in the first quarter will be similar to the fourth quarter of 2012. if this growth will continue to reach a similar rate as expected, it may also positively affect crude oil prices (for the final estimate of 4Q GDP).
Forex and Crude Oil Prices – April Update
The EURO/USD exchange rate rose during last week by 1.08%. Furthermore, the AUD/USD also rose by 0.74%. There are still positive and strong linear correlations among these currencies pairs (EURO/USD, AUD/USD) and crude oil prices. If the U.S dollar will continue to depreciate against the EURO and Aussie dollar during the upcoming week, it may positively affect crude oil prices.
Crude Oil Prices Outlook and Analysis:
The Brent premium over WTI oil sharply declined during last week and may continue this downward trend as the oil market seems to have stabilized.
In the upcoming week there are several financial reports and events that may affect crude oil prices including: the U.S Retail sales and GDP – these reports will show the changes in U.S economic progress and reflect the change in demand for commodities; if they will show growth and beat the expectations then they could rally oil prices; the FOMC meeting might affect forex and commodities markets based on the decision of the Fed whether to announce another stimulus plan or not; Canada’s retail sales report might affect the Canadian dollar which is also linked with oil prices; U.S home sales; U.S jobless claims weekly update. If the U.S stock market will continue to trade up this may positively affect crude oil prices. Finally, if major currencies including EURO and Aussie dollar will continue to appreciate against the U.S. dollar, then they may positively affect crude oil prices.
I speculate during the upcoming week, WTI oil price will trade between $98 and $106 and Brent between $115 and $120.
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