Crude oil prices started off the first day of the week with moderate falls, after they rose on Friday.
Let’s examine the recent news related to crude oil trading for today, May 23rd:
Crude oil prices – May update
On Friday, May 20th, the WTI crude oil prices inclined by 1.07%; During May, up to last week, WTI spot oil decreased by 12.26%.
Brent oil price also moderately inclined on Friday by 0.89%; during May Brent oil declined by 10.91%.
The chart below shows the changes of WTI spot oil and Brent oil prices during May 2011, in which the prices are normalized to the beginning of May.
As seen, crude oil prices fell sharply at the first few days of May and since then remained nearly 10% below the initial price level.
The premium of Brent oil over WTI: this gap reached on Friday, May 20th 13.29$/b. During May, the premium shifted and fluctuated very rapidly and ranged between 12 and 17.8$.
The chart above shows that during 2011 that the standard deviation reached a record high during May, even more so than in February.
The Euro US dollar and crude oil during May
During May, up to date, there is still very strong linear correlation between Euro to US dollar conversion rate and the daily percent changes of crude oil prices mainly with WTI spot oil.
As seen in the chart below, the linear correlation between WTI spot oil and Euro to US dollar conversion rate reached 63.4% – the highest correlation in 2011.
During May, Euro to US dollar conversion rate fell by 4.36% while the WTI fell, as stated above, by 12.26%.
The slow down in Europe and the concerns around the debt crisis in it, most recently the concern over Portugal’s debt crisis, is probably among the reasons for the strengthening of US dollar compared to Euro and its decline in crude oil prices.
The S&P500 and crude oil during May
There is also very strong linear correlation between the S&P500 dailt percent changes and crude oil prices (WTI and Brent oil) as seen in the chart below:
The correlation between these indexes and prices fluctuates very rapidly and isn’t constant during 2010 and 2011, however, for now, the changes in crude oil prices seem to be highly positively correlated to the S&P500 during April and May.
World news – oil markets
Following the recent news from Portugal about its debt crisis, in which Portugal is to receive from IMF and European Union 111 billion USD, the government is determined to slash its budget and make reforms in the country.
As the current unrest in Yemen progresses, there are reports that the current President Ali Abdullah Saleh has agreed to the terms of Gulf Cooperation Council plan to relinquish his power; this turn of events might end the current turmoil in Yemen.
Yemen controls the Bab al Mandab strait – one of the most important strait in the world; it connects the Red sea to the Golf of Aden. This strait is pivotal for transport of commodities including oil. Up to now, there weren’t any news related to any impediments in the strait.
The uncertainty in Yemen also affected its oil production as the Canadian oil explorer – Nexen Inc. reported its annual production declined due to labor strikes in Yemen.
The fighting between the rebels and Qaddafi’s forces continues with no clear end in sight.
In the last few months since the rebellion against Qaddafi’s regime has commenced back in February 2011, Libya’s oil production fell from 1.6 million bbl/d back in January 2011 to an estimated at 0.4 million bbl/d in April 2011.
Following the air strikes of NATO on Qaddafi’s compound, he is reported to hide from further attacks by NATO and limited his movement and communication with his loyal soldiers.
The protests against the current regime of President Bashar al-Assad continues and the current death toll rose to 62 protestors, according to Bloomberg.
Current crude oil prices
Major crude oil prices started off the week with moderate falls in the Asian markets:
The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 98.52 USD / barrel, a drop of 1.58 USD/b or 1.58%, as of 07.09*.
The Dated Brent spot oil price declines by 1.93$/b and it is at 110.85 USD / barrel as of 07.19*.
Thus, the current premium of Brent over WTI is at 12.33$/b.
Crude Oil price outlook and analysis:
Crude oil prices inclined on Friday, and are currently traded down; these prices keep on demonstrating no clear trend as they did in the recent weeks; this is after they fell very sharply at the first few days of May.
There is still high uncertainty from both the supply and demand sides: from the demand side, the speculation around the future of major economies’ oil consumption including U.S., Europe, Japan and China; from the supply side, there is still uncertainty in regards to OPEC’s future oil output to be discussed in the upcoming OPEC meeting in June.
I still speculate that in the short term all these concerns will continue to pull crude oil prices in different directions and eventually keep crude oil prices at their current high prices.
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
06.00 – Bank of Japan monthly report
23.50 – Report of Japanese Trade balance (for April)
For further reading:
- Weekly outlook for May 23-27
- Oil prices didn’t move much last week – Weekly recap 16-20 May
- US Petroleum stocks remained unchanged – May 19