Crude oil prices are still high but didn’t do much during March. Furthermore, during last week Brent oil edged down 0.43% and WTI by 0.55%. The premium of Brent oil over WTI remained high in the $17 to $19 range. The tensions between Iran and the West are still high. The recent sanctions on Iran may start to affect the global oil supply – according to a recent report, oil exports from Iran will drop by 300k barrels per day. On the other hand Saudi officials are trying to calm the markets by claiming that Saudi could raise it oil production by as much as 25% if needed. I wrote in a recent post why this promise even taken at face value won’t help in case there will be an escalation in the relationship between Iran and the West.
Here is an outlook and analysis on the crude oil market for the week of March 26th to 30th:
Crude Oil Prices – March Update
On Friday, March 23rd crude oil price (WTI) rose by 1.44% and reached $106.47/b; Brent oil price also increased by 1.68% to $125.86/b; during last week, WTI spot oil edged down by 0.55% and Brent oil by 0.43%.
In the chart below are the changes in WTI and Brent oil prices during March (prices are normalized to February 29th).
Premium of Brent over WTI – March Update
The difference between Brent oil and WTI spot oil didn’t move much during last week, and was still in the range of $17-$19 per barrel. During March the premium increased by 15.28%. The tensions between Iran and Europe including the recent news regarding the further boycott and sanctions on Iran may keep the tensions high and thus also keep oil prices high as well.
During March the correlation between Brent oil price and WTI oil price (daily percent changes) continues to be high at 0.77. This means the relation between WTI and Brent oil prices is still robust and strong. This figure coincides with the stabilization of the gap between Brent and WTI.
Standard Deviation
The standard deviations of oil prices sharply fell during March to their lowest level since January 2012. This might indicate that both crude oil prices’ volatility has declined in recent weeks.
Crude Oil Stockpiles –Rose Last Week
U.S. crude oil stockpiles increased last week by 1.5 million barrels. For the week ending on March 16th oil stockpiles reached 1,751.1 million barrels. The current oil stockpiles are still below the quota from last year: the current crude oil stockpiles are 14.236 million barrels below oil stockpiles levels recorded during the parallel week in 2011.
The upcoming report will be published on Wednesday, March 28th and will refer to the week ending on March 23rd.
Main Oil Related News Items
Monday German Business Climate Survey: This survey estimates the developments) of the business climate of Germany; if it will continue to show growth, , it could positively affect the Euro;
Monday – U.S. Pending Home Sales: This report shows the changes in pending home sales in the U.S. for February 2012; in the recent report the pending home sales index rose by 2% compared with the previous month’s index; the pending sales may decline and thus weaken the U.S dollar;
Tuesday – U.S Consumer Confidence: according to the recent report, the consumer confidence index increased in February; this report might affect commodities market especially the natural gas market;
Wednesday– Euro Area M1, M3: In the previous January report, the annual growth rate for M3 and M1 sharply rose. If the M1 and M3 will continue to rise in March it could serve as another indicator for the rising inflation pressures in the Euro Area;
Wednesday– U.S Core Durable Goods: This monthly report will examine the changes in U.S. orders of durable goods in the manufacturing sector during February 2012. This report may indirectly present the changes in U.S. demand for commodities including crude oil. According to a estimate for January 2012, manufactured durable goods sharply fell to $206.1 billion; Non-defense new orders for capital goods also declined to $79.5 billion;
Thursday 29th of March 13:30 – Final U.S GDP 4Q 2011 Estimate: This will be the final estimate of U.S’s fourth quarter 2011 real GDP growth. In the recent estimate the U.S GDP in the fourth quarter rose by 3%. If there will be a sharp shift in this estimate it could also affect the path of not only the US dollar but also commodities prices;
Thursday– U.S. Jobless Claims Weekly Update: initial claims decreased to 348,000 claims for the week ending on March 17th; the number of insured unemployment declined by 9 thousand to 3,352 thousand during the week of March 10th; the upcoming weekly update may affect the direction of the US dollar and consequently commodities;
Thursday– EIA U.S. Natural Gas Market Report: In the recent report, natural gas storage slightly rose by 11 Bcf to 2,380 billion cubic feet (the previous review on the natural gas report);
Saturday– China Manufacturing PMI: this index will refer to the Manufacturing conditions in China; in the previous report the manufacturing PMI edged up to 51; if this upward trend will continue, this may also positively affect commodities prices;
Forex and Crude Oil Prices – March
The EURO/USD exchange rate edged up during last week by 0.71%. On the other hand, the AUD/USD also declined by 1.22%. There are still positive and strong linear correlations among these exchange rates (EURO/USD, AUD/USD) and crude oil prices; e.g. during March, the correlation between WTI and AUD/USD is 0.61 and between WTI and Euro/USD is 0.38). If the U.S dollar will depreciate against the EURO and Aussie dollar during the week, it may positively affect crude oil prices.
Crude Oil Prices Outlook and Analysis:
The premium of Brent over WTI seems to have stabilized for the time being around the $17-$19 mark; while oil prices didn’t come down much on a weekly scale and frankly didn’t so much on a monthly scale – during March WTI oil price slipped by 0.56% while Brent oil rose by only 1.56%. There are ample oil related headlines that pull crude oil prices into different direction but not more than that. The tensions between Iran and the West and the low stockpiles in Europe will probably keep the Brent premium high.
In the upcoming week there are several financial reports and events that may affect crude oil prices including the U.S pending home sales, consumer confidence report, U.S Canada and GB GDP, China’s manufacturing PMI, U.S core durable goods and U.S jobless claims weekly update. If the U.S reports will mostly be positive and show signs of growth then they may help rally crude oil prices. Finally, if major currencies including EURO, and Aussie dollar will appreciate against the U.S. dollar, it may also positively affect crude oil prices.
I speculate during the upcoming week, WTI oil price will trade between $104 and $112 and Brent between $122 and $128.
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