Oil prices Monthly outlook – September 2011

Crude oil prices sharply fell during August; this decline was mostly during the first few days of August. The end of the Libyan civil war during August didn’t affect much oil traders as oil prices continued to rise during the second half of the month; also, the spread between Brent oil and WTI oil prices did shrink but expanded. The uncertainty in the oil market helped oil prices fluctuate and change directions several times during August.  Where are crude oil prices headed in September? I will present herein the main changes of crude oil prices (WTI and Brent oil) during August, and provide an outlook for  September 2011:

During August 2011 WTI spot oil prices sharply fell by 7.18%, while Brent oil price nearly didn’t change and fell by only 0.61%.  The average prices in August also sharply fell by 11.3% for WTI spot oil and 5.7% for Brent oil compared with July’s averages.

Crude spot oil price WTI  outlook and Brent oil 2011 forecast AUGUST September 4

The chart above shows the changes in both major energy commodities’ prices (Brent oil and WTI spot oil).

The table below summarizes the changes in Brent oil and WTI during August with respect to the changes in the Euro to US dollar exchange rate and the Australian dollar to US dollar exchange rate. The table broke August into three parts: up to August 10th, August 10th to August 18th, and August 18th up to August 31st.

Table percent change Crude spot oil price WTI and Brent oil 2011 AUGUST September 4

During the first period, oil prices sharply fell, while the US dollar appreciated against major currencies; in the second part, WTI spot oil didn’t change much, while Brent oil price rose. During that period the US dollar slightly depreciated against the Euro and AUD. In the final period, WTI spot oil price sharply fell again, while Brent oil price only slightly slipped.

The standard deviation of crude oil prices sharply increased in August compared with July’s. The standard deviations of WTI oil and Brent oil daily prices reached similar values as in June 2011, when crude oil prices declined.

These figures indicate that crude oil prices’ volatility increased in August as the uncertainty in the oil market rose.

standard deviation of the spot oil prices  WTI and Brent spot oil 2010-2011 (Monthly) AUGUST September 4

Brent oil premium over WTI spot oil

The Difference between the two commodities’ prices continued to expand: during August it shot up from the $20 to $24 mark in the first half of August to $25 to $27 mark in the second half of the month. As stated above, the news of the end of the Libyan war didn’t hold back the spread between Brent and WTI from further expanding. This means that the difference between Brent oil and WTI is only partly related to decrease in oil supply from Libya. I think this spread is partly a fundamental change, in which the US oil market loosened compared with the European oil market starting back in January (a month before the Libyan war commenced). Furthermore, the recent uprise in the spread is more related to the speculation around the US economy’s progress as it is reflected in the decline in US stock markets.

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