Crude oil prices started the day with sharp falls as the Fed lowered its GDP growth rate for 2011. On the other hand, China might start to show an increase in crude oil. Today the US labor report and US home sales will be published.
Here’s a short analysis of the crude oil market for today, June 23rd:
According to recent news, the IEA will release 60 million crude oil bbl from its strategic reserves in order to top off the shortage in crude oil supply caused by the current war in Libya. This news might be among the reasons for the sharp fall in crude oil prices, but this move is a short term solution and the only way the uncertainty around the current oil supply will be resolved is if OPEC will raise its crude oil quota.
Crude oil prices – June 2011
Yesterday, June 22nd crude oil price (WTI) inclined by 1.43% to $95.01/b; during June (UTD) WTI spot oil shed 7.5% of its value.
Brent oil price, also inclined by 1.65% to $113.87/b; during June Brent oil decreased by 2.82%.
The premium of Brent oil over WTI spot oil
The premium of Brent oil over WTI spot oil leveled out around the 18-19 dollar mark as it reached yesterday June 22nd $18.86/b; it rose by 30.25% during June.
Following the spike in the premium of Brent oil over WTI a few days back, the gap between Brent oil and WTI spot oil is closing, but it is still high.
Federal Reserve’s rate decision
As expected, the Fed kept the basic interest rate unchanged between 0 and 0.25%. This rate remained unchanged for the past couple of years.
The Fed also updated the US GDP growth rate to 2.7-2.9 after it was 3.1-3.3% in the April forecast. This forecast might have caused investors to trade down major commodities as crude oil prices are falling today.
There was still no sign of a new QE/ stimulus plan in Ben Bernanke’s speech; this might keep US dollar strong compared with major currencies.
Petroleum stocks in the US
U.S. petroleum stocks bounced back and rose, according to recent report done by EIA. U.S. Petroleum and oil stocks rose during last week by 3.084 million barrels, or by 0.17%. For the week ending on June 17th crude oil stocks reached 1,791 million barrels (See here the previous petroleum report).
The chart below presents the petroleum and oil stocks levels compared to the WTI crude oil prices during 2011.
China’s oil demand – update
Following yesterday’s update on China’s crude oil demand during May that showed a slowdown in growth, there is a new analysis in the recent EIA report of China’s crude oil demand for the rest of 2011.
According to the report the complex structure of the electricity market of China might result in an increase in China’s crude oil demand despite the slowdown of its economy (see here for further details). If this analysis will prove to be correct, it may push crude oil prices up in the months to come.
Current crude oil prices
Major crude oil prices are currently traded down at the European markets:
The Nymex crude oil price, short term futures (July 2011 delivery) is traded at $91.59 / barrel, a $3.82/b decrease or 4%, as of 13:56*.
The Dated Brent spot oil price declines by $4.29/b to $109.58 / barrel as of 14:07*.
Thus, the current premium of Brent over WTI is at $17.99/b.
Crude Oil price outlook and analysis:
The Fed’s update about not issuing at this stage any new stimulus along with the new updated GDP growth rate of the US economy are probably among the main reasons traders are currently trading crude oil down.
In the short term this trend might continue as crude oil prices will keep declining, but there are other factors that might push crude oil prices up in the mid term range including:
From the demand side, there is usually a rise in demand for crude oil due to seasonality effect (summer); China’s role in the world’s crude oil demand will be a key factor.
From the supply side, the speculation over OPEC’s oil production quota is still high and if Saudi Arabia will raise its oil production quota this might also bring down crude oil prices.
From TA side, if the Fed will eventually launch a new stimulus plan in the next few months this might weaken the US dollar and result in driving crude oil prices up.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13:30 – Department of Labor report – U.S. unemployment claims
15:00 – U.S. new home sales
15:30 – EIA report about Natural gas storage
13:30 – US Department of Commerce – Report on Durable Goods
13:30 – US GDP 1Q 2011 report
For further reading: