Crude Oil Prices – Weekly Outlook January 9-13

Crude oil prices started off the month of January with sharp gains mainly during the first couple of days of the year. Will this upward trend continue?  For the second week of January, let’s examine what is up ahead for the crude oil market.  

Here’s an outlook and analysis of the crude oil market for the week of January 9th to January 13th:

Crude Oil Prices – January Update

On Friday, January 6th crude oil price (WTI) slightly slipped  by 0.25% to $101.56/b; Brent oil price on the other hand inclined by 0.86% to $113.06/b; during last week, WTI spot oil increased by 2.76% and Brent oil price by 5.09%.

The chart below shows the development of WTI spot oil and Brent oil prices during the past few weeks (prices are normalized to December 15th). It shows the upward trend of both crude oil prices during the past couple of weeks.

Crude spot oil price forecast 2011 Brent oil and WTI spot oil  2012 January 9Premium of Brent over WTI – January Update

The premium of Brent oil over WTI spot oil changed direction and recent few days it had incline and reached on Friday to $11.50. Furthermore, during January the premium sharply rose by 31.43%.

Difference between Brent and WTI crude spot oil price forecast 2012 January 9Despite the rise 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 continued to rise. This means that the relation between WTI and Brent oil prices has tightened in recent months (see below the chart of the development of crude oil prices’ linear correlations).


Correlations wti and Brent crude spot oil prices  JAN 2011- December 2012 January 9-13Main Oil Related News Items

German Industrial Production: this report will present the growth during November of Germany’s industrial production and could indicate the progress of the German Economy and consequently may influence commodities traders;

China’s Trade Balance: according to Reuters China’s trade surplus will reach a four month high of $21.6 billion, but during 2011 China’s surplus has shrunk to $160 billion; if this trend will continue it could indicate that China’s economic growth is slowing down, and thus may affect the crude oil market;

U.S. Retail Sales: this report will present the monthly changes in the retail sales and food services during December; in the recent November report, the retail sales, when controlling for the price changes, slightly rose by 0.2% from the previous month; gasoline stations sales decreased by 0.1% in November; this report could indicate the changes in U.S’s gasoline demand (see here my review of the recent report).

American Trade Balance: the upcoming monthly report for November will present the changes in U.S imports and exports of goods and services; The American trade balance report for October the goods deficit decreased by $0.7 billion compared with September and reached $58.8 billion; the service surplus remained virtually unchanged at $15.8 billion; as a result, the goods and services deficit declined during the month to $43.5 billion.

Crude oil Stockpiles – Slightly Inclined Last Week  

U.S. Petroleum and crude oil stockpiles inclined for the week ending on December 30th by 3.4 million barrels and reached 1,740.26 million barrels. The current oil stockpiles are 49.944 million barrels below oil stockpiles levels recorded during the same week in 2010. The upcoming report will be published on Wednesday, January 11th and will refer to the week ending on January 6th.

Forex Exchange Rates Market and Oil Prices – January

The EURO/USD exchange rate continued its downward trend and declined by 1.88%, while AUD/USD only moderately rose by 0.19%; the positive relation between crude oil prices and Euro/ US dollar might have be among the factors to pull down oil prices during the second part of 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 inclined during the first week of 2012 by 1.61% to reach 1,277 on Friday; during past several months there were strong positive correlations between crude oil prices and S&P500 index (e.g. during December-January the correlation with WTI oil price was 0.658 and with Brent oil 0.665). The chart below presents the changes in the linear correlations between crude oil prices and S&P500 index during recent months (moving correlations over a span of a month).

If the American stock market indexes will continue to rally during the second week of January, this may also push up crude oil prices.

Correlations wti and Brent spot oil prices with S&P500 April  December January 9 2012

Crude Oil Prices Forecast and Analysis:

Crude oil prices rallied in recent weeks and sharply inclined at the first few business days of January. This may have been due to the positive U.S. reports (U.S. PMI Manufacturing) and the “January effect” that helped push up not only American stock markets, but also crude oil prices.  In the second week of the January there are many news items that could affect the financial markets and consequently also the crude oil market; if the U.S. reports mainly the American retail sales reports and trade balance report will show an improvement this will signal a growth in the U.S. economy that might positively affect the American stock market and along with it the crude oil market. The Chinese and German reports may also play a role in the crude oil market if they will present a sharp change. The tension between Iran and the West will likely to keep crude oil prices high. Finally, if the major exchange rates including EURO, AUD and CAD will depreciate against the U.S. dollar (there is a rate decision by ECB on Thursday), they may curb the rally of crude oil prices and even reverse the recent upward trend.

I speculate that during the second week of 2012, WTI oil price will revolve around $100-$105 mark and Brent oil price around $110-$116.    

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