Following the sharp falls of crude oil prices during last week, this week might also present a drop in prices. Today the European summit (The Economic and Financial Affairs Council) will be among the main events that could stir up the financial markets today and affect not only the Euro, but also crude oil prices. Let’s review and analyze the crude oil market for today, June 20th:
Crude oil prices – June 2011
Last week ended on, June 17th with crude oil price (WTI) falling by 2.04% to $93.01 – the lowest price level since February 22nd; during June (UTD) WTI spot oil decreased by 9.44% – the same rate crude oil price shed off its value during the entire month of May.
Brent oil price also declined on Friday by 0.73%, it reached $113.49 – the lowest price level since May 24trh; during June Brent oil declined by only 3.15%.
The difference between Brent oil and WTI spot oil
As presented below, the premium of Brent oil over WTI rose by 41.44% during June as it reached on Friday, June 17th $20.48/b.
Despite the recent drop in crude oil prices, Brent oil price maintains its premium over WTI crude oil prices; this finding suggests that the European crude oil market where Brent oil is consumed (among other continents) is tightening compared with the US oil market.
The Euros to US dollar and crude oil prices
The Economic and Financial Affairs Council is held this week and will revolve around the Greek debt and the uncertainty around the restructuring of Greece’s maturing debt. Greece expects to receive from the IMF and The EU nearly $16 billion in order to ward off near default status. Greece is also having a hard time raising funds: Greece’s government bond yields reached this week a high level of 16.94%, which is a 1.5 percent point increase during June.
The turmoil also reached other European countries: long term bonds of Portugal and Ireland also inclined in June by 1.69 percent point and 0.88 percent point, respectively. Spain’s long term bond yields are also starting to rise and inclined during June by 0.31 percent point to 5.57%.
In recent months there was a strong linear correlation between the Euros to US dollar exchange rate and crude oil prices. Granted, this correlation isn’t reliable, but currently it seems that the major currencies are strongly linked with the daily percent changes of crude oil prices.
During June (so far) the strongest correlations were among USD to Canadian dollar, Euros to USD and WTI and Brent oil prices.
These correlations show that as the US dollar strengthens against major currencies (mainly Euro and CAD) crude oil prices drop. If this relation will prove to be reliable, we may see that if the news from the European summit won’t resolve the Greek debt and as a result push down the Euro; this may also affect the crude oil prices as they will decline.
S&P500 and Crude oil prices
During April and May there were strong positive linear correlations among crude oil prices and S&P500 index (daily percent changes). This relation between crude oil price and S&P500 index may suggest that their movement are linked and are affected by one another.
These findings may indicate that the recent falls in crude oil prices are linked with the declines in the US stock market.
Current crude oil prices
Major crude oil prices are currently traded down at the Asian markets:
The Nymex crude oil price, short term futures (July 2011 delivery) is traded at $91.76 / barrel, a $1.25/b decrease or 1.34%, as of 06:46*.
The Dated Brent spot oil price declines by $1.21/b and it is at $112.28 / barrel as of 06:56*.
Thus, the current premium of Brent over WTI is at $20.52/b.
Crude Oil price outlook and analysis:
The monetary situation in Europe may affect not only the Euro, but also crude oil prices as these indexes are linked. The concerns in Europe over the Greek debt might further keep the Euro down and raise the USD; consequently this may also push oil prices down. This matter is likely to affect crude oil prices as it did in the past, but it’s still not clear if this force will dominate in the near future.
There are still reasons to consider that may keep crude oil prices high including:
From the demand side, there is usually a rise in demand for crude oil due to seasonality effect (summer);
From the supply side, there are still concerns that OPEC won’t raise its oil production quota, despite the signals given by Saudi Arabia to raise its oil production quota. The start of hurricane season in the Golf of Mexico might also cause impediments in the US oil production; these factors may keep crude oil prices high.
I still think that despite the recent drop in crude oil prices, they will continue to remain high in the mid term until the uncertainty around the demand and supply of crude oil will be resolved.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
All day – European council summit
2:30 – Monetary Policy meeting Australia’s Bank
13:30 – Core retails sales Canada (April 2011)
15:00 – U.S. existing home sales
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