Let’s examine the main news for today, April 11th that might affect the crude oil markets.
Libyan conflict – is there an end in sight?
The ceasefire plan, which was comprised by the Africa Union, to which Qaddafi had agreed to its guide lines, wasn’t accepted by the leaders of the rebels, according to Bloomberg. The rebels said they won’t accept a ceasefire offer without an assurance the Qaddafi and his sons won’t remain in Libya.
This may have a short term effect on the oil market and drive its prices down, however until the Libyan conflict won’t resolve, the current crude oil prices will remain high.
The turmoil in Libya started during the middle of February and is nearing its two months mark.
Due to the conflict between the rebels and Qaddafi, the Libya’s oil production has declined to near a halt and there are some estimates that the current Libyan oil production is less than a quarter of its normal output, which was before the conflict started 1.65 million bbl/d.
Libya has the largest oil reserves in Africa with over 46.4 billion barrels.
Japan another earthquake
Another strong aftershock of 6.6 in Richter scale was registered in Northeast of Japan earlier today. It’s not clear yet what were the ramifications of this aftershock.
Current crude oil prices
Major oil prices are traded in the US markets with falls:
The Nymex crude oil price, short term futures (May 2011 delivery) is traded at 109.41 USD / barrel, a 3.38 USD/b decrease or -3.00%, as of 19.41*.
The Dated Brent spot crude oil declines by 3.13$/b and it is at 123.61 USD / barrel as of 19.57*.
Thus, the current premium of Brent over WTI is at 14.2$/b.
Crude Oil price outlook and analysis:
Crude oil prices rallied by the end of last week, probably due to market reaction to the ECB decision to raise its interest rate; this decision caused the USD to devalue compared to the EUR, and consequentially to other major currencies. Since major commodities, including crude oil, are priced in US dollars, this devalue of US dollar was reflected in commodities prices such as gold and oil prices.
As seen in the chart below, the Brent and WTI oil prices had an upward trend mainly during the middle of February – around the time the turmoil in Libya had commenced.
I still think that oil prices are at a high level vis-à-vis to the current effect of the demand and supply forces have on them. This means that I speculate that most of the recent increase in oil prices is more driven by speculation of the future and current effect the recent events in the Middle East and the tsunami attack on Japan have on the energy markets and could dissipate very quickly. Nonetheless, until the uncertainty will clear up from these events, crude oil prices will remain high, and in the short term, all things being equal, they will show moderate fluctuations, with little changes as the week will progress.
Difference between Brent oil and WTI spread: on Friday, April 8th, the gap between Brent oil and WTI has risen and reached 13.95$/b.
I still think that this premium will remain around the 10 and 15$/b in the near future, as it has been in the past month as seen in the chart below:
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
China New loans and M2 money supply
13.30 –Canadian Trade balance
13.30 – Report on American Trade balance
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