Crude oil prices didn’t do much during last week after they had sharply rose in the first week of the year. From the supply side, there are still growing concerns of the rising tension between Iran and the West but it has yet to reflect in the crude oil prices. From the demand side, the slowdown in the EU may have been among the factors in curbing the rally of crude oil prices. What is up ahead for crude oil markets in the third week of January? Let’s analyze the oil market and the main news items and events that may affect crude oil prices.
Here’s an outlook and analysis of the crude oil market for the week of January 16th to January 20th:
Crude Oil Prices – January Update
On Friday, January 13th crude oil price (WTI) slightly declined by 0.40% to $98.70/b; Brent oil price also slipped by 0.15% to $110.87/b; during last week, WTI spot oil decreased by 2.82% and Brent oil price by 1.94%.
The chart below shows the development of WTI spot oil and Brent oil prices during January (prices are normalized to December 30th). It shows the rise and fall of both crude oil prices during the past couple of weeks.
The premium of Brent oil over WTI spot oil continued its upward trend and reached on Friday to $12.17. Furthermore, during January the premium sharply rose by 39.09%.
Despite the rise in the difference between Brent oil and WTI oil prices, the correlation between the daily percent changes of Brent oil price and WTI oil price continued to be high. This means that the relation between WTI and Brent oil prices has tightened in recent weeks (see below the chart of the development of crude oil prices’ linear correlations).
OPEC Monthly Report: this report will show the main changes in crude oil’s supply and demand worldwide; the report will also analyze the changes in the production of OPEC countries during December; the recent changes in crude oil prices might be stem, in part, from the changes in OPEC’s oil production; (See here a summary of the last December report);
China Fourth quarter GDP: during the third quarter of 2011, China grew by 9.1% in annual terms; the current expectations are that the Q4 2011 grew in annul terms by 9.3%; if the growth rate will be lower it might have an adverse effect on crude oil prices;
U.S. Producer Price Index: This report will show the progress in the PPI during December, i.e. the inflation rate from producers’ stand point. In the last report regarding November this index for finished goods slightly rose by 0.3% (m-o-m); this news may affect gold and silver prices;
IEA monthly oil report: this upcoming report will present an updated (as of December) outlook and analysis for the global crude oil market for 2012 and 2013 (See here a summary of the previous report);
Philly Fed Manufacturing Index: This monthly survey provides an indicator for the economic growth of the US economy as it measures the manufacturing conditions of the US. In the December survey, the Philly Fed report showed the growth rate moderately rose to +10.3 in November. If this index will continue to rise it may positively affect crude oil prices (see here last report);
U.S. Housing Starts: in the last report, the adjusted annual rate roes by 9.3% to reach 685,000 in November 2011 (see here the recent review);
Crude oil Stockpiles – Sharply rose Last Week
U.S. Petroleum and crude oil stockpiles sharply rose again during last week by 9.4 million barrels and reached 1,749.7 million barrels. The current oil stockpiles are still below the quota from last year: the current crude oil stockpiles are 41.447 million barrels below oil stockpiles levels recorded during the same week in 2011.
The upcoming report will be published on Wednesday, January 18th and will refer to the week ending on January 13th.
Forex Exchange Rates Market and Oil Prices – January
The EURO/USD exchange rate zigzagged during last week but eventually by the end of the week it had declined by 0.29%, while AUD/USD rose by 0.92%; the positive relation between crude oil prices and Euro/ US dollar may have be among the factors to drag down oil prices during last week. If the U.S dollar will further strengthen against the Euro and Australian dollar during the upcoming week, it may affect the direction of crude oil.
U.S. Stock Market / Crude Oil Prices – January
The S&P500 index rose during the second week of 2012 by 0.88% to reach 1,289 on Friday; during past months there were strong positive correlations between crude oil prices and S&P500 index (e.g. during January the correlation with WTI oil price was 0.761 and with Brent oil 0.594). The chart below shows the linear correlations between crude oil prices and S&P500 index during recent months.
If the American stock market indexes will continue to rally during the third week of January, this may also push up crude oil prices.
Major crude oil prices are currently traded slightly up in the European market:
Nymex crude oil price, short term futures (February 2012 delivery) is traded at $99.25/ barrel, a $0.55/b increase or 0.56%, as of 07:31*.
Brent oil price rises by $0.25/b to $111.12/ barrel as of 07:43*.
Thus, the current premium of Brent over WTI is at $11.87/b.
Crude Oil Prices Forecast and Analysis:
Crude oil prices slightly declined during last week, but they are still traded at a high price level with WTI oil price trading around the $100 mark and Brent oil around the $110 mark. During the upcoming week there are many news items that might affect the financial markets and consequently also the crude oil market including the Chinese GDP growth rate, U.S. housing starts and Philly Fed Index. The economic turmoil in Europe will continue to be a key factor in affecting people’s estimation of the future demand for crude oil in EU. From the supply side the upcoming OPEC report will shed some light on the changes in the oil production in OPEC countries. Furthermore, the concerns revolving Iran may affect the market if there will be breaking news from this region. Finally, if the major exchange rates including EURO, AUD and CAD will appreciate against the U.S. dollar, they may help the rally of crude oil prices and even reverse the recent downward trend.
I speculate that during the third week of January, WTI oil price will trade around $98-$104 mark and Brent oil price around $108-$114.
For further reading:
- Crude Oil Prices Yearly Report 2011-2012
- Weekly Outlook for 16-20 January
- Gold and Silver Prices Weekly Outlook for January 16-20
- Will Natural Gas Hit $1?
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.