Crude Oil Prices – Weekly Outlook November 14-18

Crude oil prices rallies during most of last week and may also continue their upward trend in the upcoming week depending on the development in Europe and U.S.  Currently crude oil prices are traded slightly down. The recent news from the Middle East in particular the explosion of a missile base in Iran might raise the concerns in the Middle East and might also consequently adversely affect the crude oil market. But for the time being the region remains stable. In the upcoming week there are many items on the agenda that could affect crude oil prices including Euro Area GDP for third quarter, U.S. PPI, American retail sales report and Philly Fed survey. 

 Here’s an outlook and analysis of the crude oil market for the week of November 14th to November 18th:

Crude Oil Prices – November Update

On Friday, November 7th crude oil price (WTI) rose by 1.24% to $98.99/b – the highest price level since July 26th; Brent oil price also inclined by 0.91% to $113.76/b; during November WTI spot oil increased by 6.22% and Brent oil price by 3.87%.

The chart below shows the development of WTI spot oil and Brent oil prices during November (prices are normalized to October 31st).

chart CRUDE OIL WTI SPOT OIL and SNP500  November 2011 November 14

Premium of Brent over WTI – October Update

The premium of Brent oil over WTI spot oil sharply fell throughout the week and reached on Friday to $14.77 – the lowest premium level since June 29th, 2011. During November the premium fell by 9.55%.


Difference between Brent and WTI crude spot oil price forecast 2011 November 14

Crude oil Stockpiles – Sharply Fell Last Week  

U.S. Petroleum and crude oil stockpiles changed direction and sharply declined by 15.3 million barrels to 1,745.3 million barrels. The current crude oil stockpiles are 96,705 million barrels below crude oil stockpiles levels recorded in the same week last year.

If the crude oil stockpiles will decline again it may further pressure the WTI oil price to rise again.

The new report will be published on Wednesday, November 16th.

The chart below presents the petroleum and oil stockpiles levels compared to the WTI crude oil price in 2010 and 2011.

Weekly U.S. Ending Stocks Crude Oil and WTI spot oil price 2011 November 10

On This Week’s Agenda:

Tuesday: U.S. Retail Sales: in last month’s report regarding September, the retail sales, when controlling for the price changes, slightly inclined by 1.1% from the previous month; gasoline stations sales increased by 1.2% in September; this report could indicate the changes in U.S demand for gasoline (see here my review of the recent report).

Tuesday: Euro Area GDP 3Q2011 Report: Germany France and Italy will publish this week their preliminary third quarter GDP report. If this report will be positive and show an improvement in the third quarter, it could also positively affect crude oil prices to rise as well (see here recent report);

Tuesday: U.S. Producer Price Index: This monthly report will show the progress in the PPI during October, i.e. the inflation rate from producers’ stand point. In the recent report regarding September, this index for finished goods rose by 0.8% compared with August’s rate and by 6.9% in annual terms;

Wednesday: Euro Area Core CPI: Following the recent interest rate cut done by the ECB, there are those who may consider there will be an increase in the inflation pressures in the months to come. In last flash report regarding October 2011, the annual inflation rate was 3.0%, which may affect the future ECB interest rates decisions;

Wednesday: U.S Consumer Price Index: During September, the CPI inclined by 0.3% and over the last 12 months by 3.9%. The core CPI inclined by 0.1%; this news could indicate the changes in the U.S energy market.

Thursday: U.S. Housing Starts and Building Permits: in the recent report, the adjusted annual rate of housing starts reached 658,000 in September – a 15% increase from August , while the building permits slipped by 5%. If the upcoming report will be positive it may also positively affect oil prices (see here the recent review);

Thursday: U.S. Unemployment Claims: initial claims decreased by 10,000 to 390,000 claims for the week ending on November 4th; the number of insured unemployment fell by 92k to 3.615  million during the week of October 29th;

Thursday: Philly Fed Manufacturing Index: This survey provides an indicator for the economic progress of the US economy as it measures the manufacturing conditions of the US. In the October the index inclined from -17.5 in September to +8.7 in October. This index, may affect not only the U.S Dollar but also oil prices (see here last report).

Forex Exchange Rates Market and Oil Prices – November

The EURO/USD exchange rate slipped during last week by 0.19%; this trend continues the downward trend of the Euro against the USD along with other forex exchange rates including the AUD/USD and USD/CAD. If the U.S dollar will further appreciate against the risk currencies (AUD, CAD) this may also affect crude oil prices and curb their recent rally.

U.S. Stock Market / Crude Oil Prices – November

The S&P500 index slightly inclined during last week by 0.22% to 1,263 on Friday; during recent months there was a strong positive correlation between crude oil prices and S&P500 index (e.g. during October-November the correlation with WTI oil price was 0.864 and with Brent oil 0.787).

If the American stock markets will rally as they did October, it may also contribute to the rises in crude oil prices (especially WTI oil price).

chart CRUDE OIL WTI SPOT OIL and SNP500  November 2011 November 14

Current Crude Oil Prices (November 15th)

Major crude oil prices are currently traded slightly  up in the U.S. market:

Nymex crude oil price, short term futures (December 2011 delivery) is traded at $99.48/ barrel, a $1.34 /b increase or 1.37%, as of 21:16*.

Brent oil price inclines by $0.60/b to $112.77/ barrel as of 21:27*.

(* GMT)

Thus, the current premium of Brent over WTI is at $13.29/b.


Crude Oil Prices Forecast and Analysis:

The rally of crude oil prices in the past couple of weeks is affected, in part, by the upward trend of the American stock markets; this had a strong effect especially on the WTI oil price that helped close the gap between WTI oil price and Brent oil price. The stagnation in OPEC’s oil production growth in October may have also helped pressure oil prices to rise. The low oil stockpiles in the U.S. may also affect oil prices to rise. If the upcoming American reports including housing starts, Philly Fed and retail sales will show growth, they could help crude oil prices to rise during the week. The forex market may also play a role in the development of oil prices and since the forex market is mainly affected by the news from Europe, any negative news could shift the direction of crude oil prices

I speculate that during the upcoming week, WTI oil price will revolve around $96-$101 mark and Brent oil price around $111-$116.    

For further reading:

Monthly Reports

Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.