Crude oil prices fell very sharply yesterday; the last time there was such a sharp fall was back in May 11th when WTI spot oil declined by 5.33%. Before that oil prices fell sharply by 8.18% on May 5th; in all these three incidences there was also a sharp appreciation in US dollar compared with major currencies. Today the US employment claims will be published along with US building permits, Euro Area CPI and US natural gas report. Let’s review and analyze the crude oil market for today, June 16th:
Crude oil prices – June 2011
Yesterday, June 15th, crude oil price (WTI) fell very sharply by 4.59% to $94.81; during June (UTD) WTI spot oil decreased by 7.68%.
Brent oil price also declined by 4.53%, and it reached $114.12; during June Brent oil declined by 2.61%.
The difference between Brent oil and WTI spot oil
As seen in the chart below, the premium of Brent oil over WTI rose by 33.36% during June as it reached on Wednesday, June 15th $19.31/b.
There is also evidence that there is a rise in the variance of the difference between Brent oil and WTI spot oil. The last time there was such a high variance was back in February.
These findings might indicate that European crude oil market where Brent oil is consumed (among other continents) is further tightening compared with the US oil market.
US dollar and Crude oil prices
During May there were positive linear correlations among crude oil prices daily percent changes and major currencies. These correlations continue in June as seen in the chart below.
As seen above the strongest correlations are among Euros to USD, USD to Canadian dollar, and Australian dollar to USD with WTI and Brent oil prices.
These correlations show that as the US dollar strengthens against major currencies crude oil prices drop. Yesterday, USD appreciated by 1.79% against Euro, 1.01% against Australian dollar and 1.13% against Canadian dollar. The reasons the US dollar strengthened could be related to the recent US CPI report, and the concerns over the Greek debt.
The last time crude oil prices fell very sharply was back in May 11th as WTI oil price fell by 5.33% – on that day US dollar strengthened against Euro by 1.51% and against Australian dollar by 1.26%. The same goes for the decline on May 5th as WTI oil price declined by 8.18%, US dollar strengthened against Euro by 1.94% and against Australian dollar by 1.57%.
Petroleum stocks in the US
The US Energy Information Administration published yesterday its weekly report on U.S. petroleum stocks: according to the report there was a drop in U.S. oil stocks of 622 thousand barrels during last week. This is the first decline since April 15th. For the week ending on June 10th crude oil stocks reached 1,788 million barrels (See here the recent petroleum report).
EURO AREA Consumer price index
Today, the Euro Area will be published and could affect the Euro/USD exchange rate and consequently might affect crude oil prices.
In the last report regarding April 2011 the annual inflation rate was 2.8%, up from 2.7% during Match 2011 for Euro Area, which is still above the target inflation of ECB. The expectations in the upcoming CPI report for May 2011 are of an additional growth in CPI; if this will be the case, this might be another news items that will tilt the scales towards raising the interest rate in next month’s ECB rate decision.
Current crude oil prices
Major crude oil prices are currently traded with moderate rises at the European markets:
The Nymex crude oil price, short term futures (July 2011 delivery) is traded at $95.10 / barrel, a $0.29/b increase or 0.31%, as of 08:40*.
The Dated Brent spot oil price inclines by $0.54/b and it is at $114.65 / barrel as of 08:51*.
(* GMT)
Thus, the current premium of Brent over WTI is at $19.55/b.
Crude Oil price outlook and analysis:
There are three perspectives to consider that might affect crude oil prices:
From the demand perspective, the economic indicators show that major economies including U.S, Japan Europe and China aren’t growing as they did earlier this year. This might ease the advances of crude oil prices.
From the supply perspective, 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 commencement of the hurricane season might also cause impediments in the oil production in the Golf of Mexico; these concerns are likely to keep oil prices high.
From the monetary perspective, the recent concerns in Europe vis-à-vis the Greek debt and the upcoming Euro Area CPI report might further keep the Euro down and raise the USD; consequently this may push oil prices down. This force 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.
I still think that despite the recent drop crude oil prices will continue to remain high unless there will be some good news from the supply side that may ease the pressure on crude oil market.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
Today
10:00 – Euro Area CPI and core monthly inflation (May)
13:30 – U.S. Building Permits
13:30 – Department of Labor report – U.S. unemployment claims
15:30 – EIA report about Natural gas storage
Tomorrow
Tentative – OPEC monthly oil market report
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