Crude oil prices tumbled down during last week along with many other commodities rates such as gold and silver. The FOMC revised down its projection on the U.S economy and in an effort to help jump-start the economy extended its operation twist without adding another expanding stimulus plan This news may have been among the reasons for sharp fall of crude oil prices during last week.. The U.S Philly Fed Index also didn’t come out positive and declined in June. If the upcoming U.S reports will continue to show weakness it could further drag down oil prices.
During the upcoming week there are several reports that may affect oil rates including the U.S new home sales, U.S GDP for Q1, core durable goods and U.S jobless claims.
Here is an outlook and a weekly analysis on the crude oil market for June 25th to June 29th:
Oil Prices –June
By Friday, June 22nd crude oil price (WTI) rose by 1.95% and reached $79.36/b; Brent oil also increased by 1.84% to $90.37/b; during last week, WTI spot oil fell by 5.56% and Brent oil by 7.05%.
In the chart below are the shifts in WTI and Brent oil prices during the month (prices are normalized to May 31st). It show how both oil prices have had a downward trend during most of June (UTD).
Premium of Brent over WTI – June
The difference between Brent oil and WTI spot oil fell to $10-$12 per barrel range. During June the premium declined by 29.2%.
Standard Deviation
The standard deviations of both WTI and Brent oil prices started to pick up in June but they are still lower than they were high back in May. This means the volatility of both energy prices is lower than before but is starting to rise.
Oil Stockpiles –Rose by 11Mb
U.S. crude oil stockpiles increased again last week by 11 million bl. For the week ending on June 15thoil stockpiles reached 1,795.497 million barrels.
The upcoming report will be published on Wednesday, June 27th and will refer to the week ending on June 22nd.
Main Oil Related News Items for the upcoming week
Monday – U.S. New Home Sales: This report will present the developments in new home sales May 2012; in the previous monthly report (for April 2012), the sales of new homes rose to an annual rate of 343,000 – a 3.3% increase (month over month); if the number of home sales will continue to rise, it may further indicate a pullback in the U.S real estate market which may also affect the strength of the US dollar.
Tuesday – U.S Consumer Confidence: according to the previous monthly update, the consumer confidence index declined in May (M-o-M). The current expectations are that the May index may fall; this report might affect commodities;
Wednesday – U.S Core Durable Goods: This report may indirectly show the shift in U.S. demand for commodities including crude oil. As of April 2012, new orders of manufactured durable goods increased by $0.3 billion to $215.5 billion;
Thursday 13:30 – U.S. Jobless Claims: in the latest report the jobless claims declined by 2k to 387,000; this upcoming weekly update may affect the U.S dollar and consequently commodities rates;
Thursday – Final Estimate of U.S GDP 1Q 2012: This will be the final estimate of U.S’s first quarter 2012 real GDP growth. In the recent estimate the U.S GDP in the first quarter rose by 1.9%; in the 4Q2011 the GDP growth rate was 3%. This shows a decrease in the growth rate for the US’s GDP (for the previous estimate of US 1Q GDP).
Friday – German Retail Sales: In April 2012, retail sales increased by 0.6%; if this report will continue to be positive then it might pull up the Euro/USD;
Forex and Crude Oil Prices –June
The EURO/USD exchange rate declined last week by 0.54%. Furthermore, the AUD/USD also decreased by 0.11%. There are still positive correlations among these foreign exchange rates (EURO/USD, AUD/USD) and crude oil rate. E.g. the linear correlation between the oil price and Euro/USD is 0.57 in the past month. If the U.S dollar will appreciate again against the EURO and Aussie dollar, it may further pull down oil prices.
Oil Prices Outlook and Analysis:
The Brent premium over WTI oil declined during last week and this trend may continue in the upcoming week especially if the EU debt crisis will continue and the U.S economy won’t shows signs of growth. The fundamentals (from both the demand and supply sides) point out that oil market might continue to loosen up in the weeks to follow, so unless there will be a surprise (from the supply side such as Saudi Arabia cutting its production quota) we may continue to see oil prices dwindle during the week. If the major U.S reports won’t hit expectations then they could also adversely affect the oil market.
Finally, if major exchange rates including EURO and Aussie dollar will depreciate against the U.S. dollar, then they may also pull down oil prices.
I speculate during the upcoming week, WTI oil price will trade between $75 and $82 and Brent between $87 and $92.
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