Oil prices outlook 4 May

Crude oil prices kept on declining for the second straight day and during May WTI spot oil price fell by 2.5% and Brent oil by 3.2%. What is headed for oil prices today?

Let’s examine the oil market and the major news that might affect it for today, May 4th:

Crude oil prices – May

Yesterday May 3rd, WTI spot oil declined by 2.18% and Brent oil price decreased by 1.86%.

Furthermore, the premium of Brent oil over WTI reached 11.00$/b.

The premium of Brent oil over WTI continues to be around the 11-13$/b mark.

I still think that the premium might continue to moderately decline, but will remain around a double figure gap ranging between 10 and 13 USD.

The financial markets and the news on the demise of Bin Laden

The news on the killing of head of al-Qaida – Osama Bin Laden will continue to occupy the news in the following days to come. On the other hand, following the initial reaction to this breaking news on Monday morning trading, in which major commodities fell sharply, it seems that the financial markets stabilized and are now being affected by other factors.

Petroleum stocks in the US

The EIA will publish today its weekly report on petroleum stocks: According to Bloomberg the expectations are that US crude oil stocks rose by 3.2 million barrels during last week. In the last report, US petroleum bounced back and rose by 2.9 million barrels, which is a 0.17% incline compared to the previous week. For the week ending on April 22nd the stocks reached 1,760.1 million barrels. This was the largest injection since March 25th, 2011. (See here the previous petroleum report).

Update from the Middle East

Libya

Currently most of the Libyan fighting takes place in the rebel-held city of Misrata where Gaddafi’s forces continue to strike the rebels.

Libya used to have one of the highest oil production rates in Africa at 1.6 million bbl/d back in January 2011. Libya’s oil production is still very low and estimated at 0.4 million bbl/d.

See here for the recent news about Yemen and Syria.

China oil companies petitioning oil consumption tax cut

It’s reported that the major Chinese oil companies, which are state owned, are filing a petition to Beijing to waive the current oil consumption tax they are paying in order to cut their current losses in the refinery sector. This news suggest that the current situation among major oil companies in China – the world’s second largest oil consumer, isn’t well and might imply a slowdown in its economy.

Canadian oil pipeline leaks

There is a report of an oil pipeline spill estimated at 28,000 barrels in western Canada. This leak, even if it’s on a national scale doesn’t seem much, might cause some impediments in oil supply across Canada and might even affect the export of oil to the US.

Morgan Stanley buys commodities

According to Bloomberg, Morgan Stanley remains long on oil and other major commodities, even though Goldman Sachs advised a few weeks back to its clients to start selling the major commodities, because they are over priced.

If money managers will continue to bet on oil and gold during May, this might contribute to these commodities prices remaining high, because the supply and demand forces of these commodities aren’t linked as they used to their current prices.

Current crude oil prices

Major oil prices are currently traded in the European markets with moderate rises:

The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 112.48 USD / barrel, and increased very moderately by 0.04 USD/b or 0.04%, as of 08.47*.

The Dated Brent spot crude oil inclines by 0.45$/b and it is at 122.50 USD / barrel as of 08.58*.

(* GMT)

Thus, the current premium of Brent over WTI is at 10.02$/b.

Crude Oil price outlook and analysis:

The ongoing decline in WTI oil prices that started off yesterday might be driven in part from the reaction to the news about Bin Laden’s demise, and the timing we are at – the beginning of the month. This timing usually stirs up heavy trades that shift the direction of the recent trend of oil prices.

I still speculate that crude oil prices will remain at a high level, but in the mid to long term will eventually come down, once the uncertainty around the supply of oil from the Middle East (mainly in Libya) will dissipate.

Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):

Today

15.30 – EIA report about Crude oil inventories

Tomorrow

13.30 – Department of Labor report – US unemployment claims

14.30 – Ben Bernanke, Chairman of Fed, speaks

15.30 – EIA report about Natural gas storage

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