Crude oil prices finished the week on a positive note along with the rest of the markets such as the American stock markets. The positive reports that were in published in the U.S. during last week including the U.S. labor report and U.S consumer confidence survey may have helped push up the markets including the oil market. The recent development vis-à-vis the sanctions on Iran may also affect the oil market in the weeks to come. There are several reports that will be published during the upcoming week that may affect not only the stock and forex markets, but also energy markets including: U.S. trade balance report, ECB rate decision, China’s inflation rate and EU summit. The oil stockpiles changed direction and rose during last week but might shift back to a downward trend in the upcoming report.
Here’s an outlook and analysis of the crude oil market for the week of December 5th to December 9th:
Crude Oil Prices – November /December Update
On Friday, December 2nd crude oil price (WTI) slightly inclined by 0.76% to $100.96/b; Brent oil price also slightly inclined by 0.91% to $110.35/b; during last week WTI spot oil increased by 2.80% and Brent oil price inclined by 0.91%.
The chart below shows the development of WTI spot oil and Brent oil prices during November (prices are normalized to October 31st).
Premium of Brent over WTI – November /December Update
The premium of Brent oil over WTI spot oil slightly declined during last week and reached on Friday to $9.39. During November the premium fell by 32.88%.
Due to the sharp decline in the premium of Brent oil over WTI oil prices, the correlation between the daily percent changes of Brent oil and WTI also sharply declined during last month as seen in the chart below.
Crude oil Stockpiles – Rose Last Week
U.S. Petroleum and crude oil stockpiles changed direction and rose last week by 7.6 million barrels to reach 1,740.41 million barrels. The current oil stockpiles are still below the quota from last year by 92,238 million barrels. The new report will be published on Wednesday, December 7th.
The chart below presents the changes of petroleum and oil stockpiles compared to the WTI crude oil price during 2010 and 2011.
Forex Exchange Rates Market and Oil Prices – November /December
The EURO/USD exchange rate slightly inclined during last week by 0.5%; this upward trend breaks the depreciation of the Euro against the USD in recent weeks; the same goes to other forex exchange rates including the Australian dollar and Canadian dollar. If the U.S dollar will continue to depreciate against the Euro and AUD, this may also affect crude oil to trade up.
U.S. Stock Market / Crude Oil Prices – November /December
The S&P500 index sharply inclined during last week by 4.34% to reach 1,244 on Friday; during recent months there was a strong positive correlation between crude oil prices and S&P500 index (e.g. during November the correlation with WTI oil price was 0.510 and with Brent oil 0.610).
If the American stock markets will continue to rally as they did during last week, this upward trend might also pressure crude oil prices to rise.
Current Crude Oil Prices (December 5th)
Major crude oil prices are currently traded with moderate changes in the European market:
Nymex crude oil price, short term futures (January 2012 delivery) is traded at $101.44/ barrel, a $0.48/b increase or 0.48%, as of 11:24*.
Brent oil price declines by $0.14/b to $110.21/ barrel as of 11:36*.
Thus, the current premium of Brent over WTI is at $8.77/b.
Crude Oil Prices Forecast and Analysis:
Crude oil prices ended last week rising. The recent development in the Middle East may continue to play a role in the development in crude oil prices and if there will be new speculations or developments of another escalation in the region mainly Iran, this could pressure crude oil prices to rise. On the other hand from the demand side, the recent positive reports from the U.S. including the positive labor report, the manufacturing PMI, the consumer confidence survey and the pending home sales report helped rally the markets including the stock markets and consequently also helped push up crude oil prices.
If the U.S. will continue to show improvement and the EU countries will also start to show growth, this could also help crude oil prices to rise.
The forex market will probably continue affecting the development of crude oil prices as analyzed above.
I speculate that during the upcoming week, WTI oil price will revolve around $99-$105 mark and Brent oil price around $108-$115.
For further reading:
- Gold and Silver Prices Weekly Outlook December 5-9
- Weekly Outlook for 5-9 December
- Crude Oil Prices – Weekly Recap 28 November- 2 December
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.