Crude oil prices started to rise again: yesterday WTI spot oil price increased by 1.35% while Brent oil rose by 0.61%. Current oil prices are rising in Europe with WTI crossing the 110$/b mark. Let’s examine the main news for today, April 8th that might affect the crude oil markets.
EC meeting – interest rate decision
Yesterday, in the European Central Bank meeting in Frankfurt, Germany, it was decided to raise the Euro Area interest rate by 0.25 percent point from its current level of 1% – the lowest level in the Euro Area history, to 1.25%.
The ECB held to that interest rate level since June 2008.
The main concern of ECB is that this low rate might pressures the inflation rate in the Euro Area, which reached 2.6% in March 2011 in annual terms, which is above the ECB target inflation of 2%.
For now this decision might have affected crude oil prices, as the USD weakened compared to the Euro because of this decision, but in the following weeks it will be seen if this decision will have any more substantial ramifications on the commodities markets. Here is a more detailed analysis on this interest rate decision and its effect on major commodities such as crude oil.
Libyan conflict – update
Libyan rebels and Qaddafi’s military are still fighting and the US Army General sees this conflict at a stalemate with no ending in sight.
Libya holds the largest oil reserves in Africa with over 46.4 billion barrels.
Libya’s oil production remains low and the estimates are that Libya currently produces only a quarter of it’s normal output, which was before the war nearly 1.65 million bbl/d.
Current crude oil prices
Major oil prices are traded in the European markets with rises:
The Nymex crude oil price, short term futures (May 2011 delivery) is traded at 111.53 USD / barrel, a 1.23 USD/b increase or 1.12%, as of 10.07*.
The Dated Brent spot crude oil rises by 1.52$/b and it is at 122.21 USD / barrel as of 10.17*.
Thus, the current premium of Brent over WTI is at 12.66$/b.
Crude Oil price outlook and analysis:
Crude oil prices are rallying again, however the percent changes are not something that we haven’t seen in the past couple of months; the oil prices‘ volatility is still high, and the risk premium related to the turmoil in the Middle East and the tsunami in Japan might continue to affect the perspective of investors in the oil market.
The ECB decision doesn’t seem to affect, for now, the investors perspective on the commodities markets including oil and gold. If any, this interest rate raise should have driven some hot speculative money away from commodities markets and not into it. Goes to show when you think the market will zig it actually zags.
I still think that oil prices are high, and they will remain at their current price level in the short term with moderate fluctuations, but there might be also a moderate rally for oil prices, in which they will increase during the day.
Difference between Brent oil and WTI spread: Yesterday, April 7th, the gap between Brent oil and WTI reached 12.37$/b. This premium remained around the 10 and 15$/b in the past month. I still think that it will remain around this range in the near future.
Here is a reminder of the top events and reports that are planed for today (all times GMT):
12.00PM – Canada unemployment rate report
For further reading (in this site):