Crude oil prices only slightly slipped during last week, which is similar to their slow downward trend in recent weeks. What is up ahead for crude oil prices in the penultimate week of January? Let’s analyze the oil market and examine the main news items and events that may influence the crude oil market.
Here’s an outlook and analysis of the crude oil market for the week of January 23rd to January 27th:
Crude Oil Prices – January Update
On Friday, January 20th crude oil price (WTI) declined by 1.92% to $98.46/b; Brent oil price also fell by 1.13% to $109.63/b; during last week, WTI spot oil slipped by 0.24% and Brent oil price by 1.12%.
The chart below presents the development of WTI oil and Brent oil during January (prices are normalized to December 30th). It shows the sharp gain and fall of both oil prices during January.
The premium of Brent over WTI continued its business cycle like movement and reached on Friday to $11.17. During January the premium sharply rose by 27.66%.
Despite the sharp rise in the gap between Brent oil and WTI oil prices, the correlation between the daily percent changes of Brent price and WTI price remained high. This means that the relation between WTI and Brent oil prices is still tight in January as it was in previous months (in the chart below are the development of crude oil prices’ linear correlations).
The standard deviation of the prices of oil has been declining in recent months as seen in the chart below; this finding suggests that the fluctuations in Brent oil price and WTI oil price have declined.
German Business Climate Survey: This survey projects the changes (on a monthly basis) in the business climate of Germany. In the recent report regarding December 2011, the business climate index increased to 107.2 in December;
U.S. Pending Home Sales: This report present the changes in pending home sales in the U.S. for December 2011; in the November report the pending home sales index rose by 7.3%; if the housing market will continue to show signs of improvement it may also help rally oil prices;
U.S Core Durable Goods Report: This monthly report will examine the changes in U.S. orders of durable goods in the manufacturing sector. This report may indirectly present the changes in U.S. demand for crude oil. During November 2011, manufactured durable goods sharply rose to $207.0 billion (for the full report);
U.S. New Home Sales: This report will show the changes in new home sales December 2011; in the previous report (November 2011), the sales of new homes rose by 1.6%;
U.S GDP 4Q 2011 Estimate: This will be the first estimate of U.S’s GDP for the fourth quarter of 2011. In the third quarter of 2011 the GDP growth rate was 1.8%. This shows a slight increase in the growth rate for the US’s GDP. The current expectations are that the growth rate in the fourth quarter will be slightly higher than the third quarter’s (for the final estimate of 3Q GDP).
Crude oil Stockpiles – Decreased Last Week
U.S. Petroleum and crude oil stockpiles slightly slipped during last week by 2.0 million barrels and reached 1,747.6 million barrels. The current oil stockpiles are 45.873 million barrels below oil stockpiles levels recorded during the same week in 2011.
The upcoming report will be published on Wednesday, January 25th and will refer to the week ending on January 20th.
Forex and Oil Markets – January
The EURO/USD exchange rate sharply rose during last week by 1.98%, while AUD/USD also rose by 1.57%; the positive correlation between crude oil prices and Euro/ U.S dollar will probably continue playing a role in the oil market. If the U.S dollar will further weaken against the Euro and Australian dollar during the upcoming week, it may also influence the direction of crude oil prices.
U.S. Stock Market / Crude Oil Prices – January
The S&P500 index rose during the third week of 2012 by 2.04% to reach 1,315 on Friday; during recent 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 0.636 and with Brent oil 0.459). 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 rise during the the upcoming week, this may also help rally crude oil prices.
Crude oil prices didn’t do much last week; in fact, after their sharp gain at the beginning of the month they have changed direction and slowly slipped. This change in direction could be due to the growing concerns of a slowdown, mainly in the EU that could adversely affect the demand for oil. The growing tension between Iran and EU doesn’t seem to have much of an effect on the oil market for the time being. In the upcoming week there are many news items that may influence the financial markets including the crude oil market such as the U.S. GDP growth rate, U.S. new home sales and the German business climate survey. Finally, if major exchange rates including EURO and AUD will continue to appreciate against the U.S. dollar, this may positively affect crude oil prices.
I speculate that during the fourth week of January, WTI oil price will trade in the range of $98-$104 mark and Brent oil price between $108 and $114.
For further reading:
- Crude Oil Prices Yearly Report 2011-2012
- Weekly Outlook for 23-27 January
- Gold and Silver Prices Weekly Outlook for January 23-27
- Will Natural Gas Hit $1?