Crude oil prices made a comeback and recovered during the recent week from their sharp tumble a week earlier. The positive news from the U.S. including the rally in the U.S. housing starts, the rise in demand for core durable goods, and the sharp drop in the U.S’s crude oil stockpiles; on the other side of the globe the rising tensions between Iran and the West maybe among the factors to raise the risk level of a potential impediment on oil’s flow from Iran to Europe. For the final week of the year, let’s examine what is up ahead for crude oil prices.
Here’s an outlook and analysis of the crude oil market for the week of December 26th to December 30th:
Crude Oil Prices – December Update
On Friday, December 23rd crude oil price (WTI) slightly inclined by 0.15% to $99.63/b; Brent oil price also moderately inclined by 0.36% to $109.25/b; during December WTI spot oil decreased by 0.73% and Brent oil price by 1.86%.
The chart below presents the development of WTI spot oil and Brent oil prices during the month (prices are normalized to November 30th). It shows the fall and rise of both crude oil prices in the past couple of weeks.
The premium of Brent oil over WTI spot oil slipped during last week and reached on Friday to $9.62. Furthermore, during December the premium sharply declined by 12.23%.
Despite the ongoing sharp shifts in the premium of Brent oil over WTI oil prices, the correlation between the daily percent changes of Brent oil price and WTI oil price remained very high in December. This means that the relation between WTI and Brent oil prices has tighten, and thus might indicate that global event affected crude oil prices more than regional news (such as changes in U.S.’s crude oil stockpiles).
U.S Consumer Confidence: in the recent report, the consumer confidence index rallied in November compared to October; this report could affect commodities markets mainly the natural gas market;
U.S. Pending Home Sales: This report shows the major changes in pending home sales in the U.S. for November 2011; in the recent report the pending home sales index rose by 10.4%. This report will be another indicator for the development of American real estate market;
China Manufacturing PMI: according to the HSBC Manufacturing PMI report regarding November the Manufacturing PMI decline to 47.7; this index indicates the changes in China’s manufacturing sectors growth rate; if this downward trend will continue, this may also adversely affect oil prices; (see here last China’s GDP report);
Crude oil Stockpiles – Sharply Declined Last Week
U.S. Petroleum and crude oil stockpiles sharply declined last week by 18.17 million barrels, or by 1.04%. For the week ending on December 9th petroleum and crude oil stockpiles reached 1,733.76 million barrels. This decline might be an indication that the demand for oil was on the rise during last week. The next report will be published on Wednesday, January 4th.
The chart below shows the development of petroleum and oil stockpiles and WTI crude oil price during 2010 and 2011.
Forex Exchange Rates Market and Oil Prices – December
The EURO/USD exchange rate didn’t do much during last week and slightly declined by 0.02%, while AUD/USD rose by 1.69%; the strong relation between crude oil prices and Australian dollar/ US dollar might be among the factors to help push up oil prices. If the U.S dollar will weaken against the Euro and AUD during the upcoming week, it may affect crude oil to further rise.
U.S. Stock Market / Crude Oil Prices – December
The S&P500 index also sharply rose during last week by 3.74% to reach 1,265 on Friday; during recent months there was a strong positive correlation between crude oil prices and S&P500 index (e.g. during December the correlation with WTI oil price was 0.614 and with Brent oil 0.603). The chart below presents the development of the linear correlation between crude oil prices and S&P500 index during recent months.
If the American stock market indexes will continue to rally during the week, this may also push up crude oil prices.
Crude Oil Prices Forecast and Analysis:
Crude oil prices made a comeback from the sharp plunge that was recorded a couple of weeks ago.
The last week of the year will probably be a short one with light trading. That being said, there could be some shifts if the upcoming U.S report will be negative and thus may pull down oil prices. If the forex and stock markets will continue to rally this may also help push up crude oil prices for the last week of 2011.
I speculate that during the last week of the year, WTI oil price will revolve around $95-$103 mark and Brent oil price around $105-$113.
For further reading:
- Gold and Silver Prices Weekly Outlook for December 26-30
- Weekly Outlook for 26-30 December
- Crude Oil Prices – Weekly Recap 19-23 December
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.