Crude oil prices very sharply inclined yesterday; this increase is probably related to the renewed expectations of sharp gains in the demand for oil in the American market. Currently crude oil prices are traded up. Today, U.S Consumer Confidence report will be published; Canada’s Retails Sales; and Canada’s Overnight Rate.
Here’s an outlook and analysis of the crude oil market for today, October 25th:
Crude Oil Prices – October Update
On Monday, October 24th crude oil price (WTI) sharply increased by 4.53% to $91.17/b; Brent oil price also rose by 1.24% to $112.15/b; during October WTI spot oil rose by 11.36% and Brent oil price by 6.38%.
The chart below presents the development of WTI spot oil and Brent oil prices during the recent months from August to October.
Premium of Brent over WTI – October Update
The premium of Brent oil over WTI spot oil sharply declined on Monday to $20.98 – the lowest premium since August 5th, 2011 . During October the premium fell by 10.91%.
Hedge Funds Bullish on Commodities
According to a report, Hedge funds are renewing their bullish bets in raw materials over the expectations that the U.S. economy is coming out of its slowdown.
On Today’s Agenda:
U.S Consumer Confidence: the consumer confidence index remained nearly unchanged in September compared with August’s index. The current expectations are that this index may continue to decline in the upcoming report;
Core Retails Sales Canada: This report presents the changes in the retails sales in Canada in August. It may affect the USD/CAD and thus also the crude oil prices (see here the full report);
Canada Overnight Rate: The Bank of Canada will publish its decision regarding the overnight interest rate, which remained unchanged at 1% as of last month;
Forex Market and Crude Oil Prices – October
The AUD/USD exchange rate increased again on Monday by 0.95%. Furthermore, the USD also depreciated against other top currencies including the Euro, GBP and CAD. The ongoing concerns revolving the European debt crisis continues to affect forex and commodities traders. If the U.S dollar will further depreciate against the risk currencies (AUD, CAD) as it did during recent week, this may also affect crude oil prices to incline.
U.S. Stock Market / Crude Oil Prices – October
The S&P500 index sharply rose on Monday by 1.29% to 1,254 and completed a rally of 10.85% during October (UTD); during recent months there was a strong positive correlation between crude oil prices and S&P500 index (e.g. during October the correlation with WTI oil price was 0.620 and with Brent oil 0.597). The chart below shows the progress of the WTI and Brent oil prices vs. the S&P500 index during October.
If the American stock markets will continue their rally as they did in recent weeks, it may also contribute to the gains in crude oil prices ( especially in the WTI oil price).
Current Crude Oil Prices
Major crude oil prices are currently traded sharply up in the European market:
Nymex crude oil price, short term futures (November 2011 delivery) is traded at $93.75/ barrel, a $2.48 /b increase or 2.72%, as of 12:10*.
Brent oil price inclines by $1.36/b to $113.5/ barrel as of 12:10*.
Thus, the current premium of Brent over WTI is at $19.75/b.
Crude Oil Prices Forecast and Analysis:
The recent gains in the American oil market as there are renewed expectations of growth in the demand for oil in the U.S. may have helped close the gap between Brent oil and WTI in recent weeks. Furthermore, the ongoing rally in the American stock markets also helped push up the WTI oil prices, while the debacle in the negotiations in the EU summit may have curbed the expectations of growth in the demand for oil in the European market so that Brent oil is rising much more moderately than WTI oil price.
Therefore I speculate that during the week WTI oil price will revolve around $87-$95 mark and Brent oil price around $108-$115.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
13:30 – Core Retails Sales Canada (August 2011)
14:00 – Canada Overnight Rate
15:00 – U.S Consumer Confidence
For further reading:
- Weekly Outlook for October 24-28
- Crude Oil Prices – Weekly Recap 17-21 October
- Natural gas prices outlook for October 2011
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.