Crude oil prices started off the week with falls, as the speculation around the supply and demand side is high.
Let’s examine the recent news related to crude oil trading for today, May 24th:
Crude oil prices – May update
Yesterday, May 23rd, the WTI crude oil prices declined very sharply by 2.25%; During May, up to yesterday, WTI spot oil decreased by 14.2%.
Brent oil price also declined by 2.41%; during May Brent oil declined by 13.1%.
The chart below of the normalized WTI spot oil and Brent oil prices during May 2011 shows that these energy commodities fell sharply at the beginning of May, and since then they fluctuated within the 6 to 7 percent range.
The premium of Brent oil over WTI: this gap reached on Monday, May 23rd 12.81$/b. Despite the moderate changes in this premium in the recent few days, during May, the premium shifted and fluctuated very rapidly and ranged between 12 and 17.8$.
Major currencies and crude oil prices during May
During May, up to date, the strongest correlation between crude oil prices and major currencies is still between Euro to US dollar conversion rate and WTI spot oil prices, and USD/ CAD and WTI spot oil prices, as seen in the chart below.
Yesterday, these major currencies fell very sharply, as the US dollar gained on them: the Euro to US dollar conversion rate fell sharply by 0.8% and reached 1.4048; USD/ CAD rose by 0.38%; and AUD/USD fell very sharply by 1.45%.
These changes coincide with the falls of crude oil prices yesterday and their linear correlation during May as seen in the chart above.
During May, Euro to US dollar conversion rate fell by 5.13%, the AUD/USD declined by 4.25% and the USD/CAD rose by 3.5%.
These falls in EURO/USD are probably related to the concerns over the European debt crisis and the AUD/USD falls is probably related to the uncertainty around the future growth rate of China’s economy and demand for oil from Australia.
Goldman Sachs and Morgan Stanly raise their oil price forecast
Despite the falls in crude oil prices at the beginning of May, Bloomberg reports that Goldman Sachs and Morgan Stanly have raised their forecasts on crude oil prices; one of the reasons they think crude oil prices will incline comes from the supply side, in particular the drop in oil production of OPEC mainly due to Libya.
Morgan Stanley raised it projections on the average Brent oil price by 20% to $120 a barrel for 2011; Goldman Sachs raised its annual oil price estimate for the European benchmark contract to $130 a barrel and recommended investors to go long on Brent oil for December 2012 contracts.
Upcoming OPEC meeting on June 8th
The speculation around the upcoming OPEC meeting on June 8th, in Vienna Austria continues to be high; the main question is whether OPEC will decide to raise its reported oil production or not. Since Libya’s civil war started back in February, Libya’s oil production fell from 1.6 million bbl/d back in January 2011 to an estimated oil production of only of 0.24 million bbl/d in April 2011.
According to the recent OPEC report regarding April 2011, the total OPEC oil production reached 28.985 million bbl/d nearly the same level as in March, but it’s nearly 3.2% below the oil production level as in February 2011.
The report also shows that the world oil supply is expected to rise by 1.63% in 2011, compared to 2010- mainly due to rising demand in China, which is expected to incline by 6.29%.
This is why it’s imperative for OPEC to raise its oil production in the months to come; otherwise, it might further tighten the oil market – mainly in Europe and Asia, and consequentially further pressure crude oil prices up.
World news – oil markets
The debt crisis in Europe continues: according to Bloomberg, the Greek 10-year government bonds declined very sharply on May 20th and thus the speculation around Greece’s capability in returning its debt is high.
There are also speculations around Europe’s manufacturing growth rate as it is expected to slow down in May. This might suggest that Europe’s demand for crude oil for manufacturing purposes is falling.
Current crude oil prices
Major crude oil prices are currently traded with moderate rises in the Asian markets:
The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 98.22 USD / barrel, a rise of 0.52 USD/b or 0.53%, as of 05.41*.
The Dated Brent spot oil price inclines by 0.74$/b and it is at 110.79 USD / barrel as of 05.50*.
Thus, the current premium of Brent over WTI is at 12.57$/b.
Crude Oil price outlook and analysis:
Crude oil prices declined yesterday, but are currently traded up; this zigzag in crude oil prices’ direction shows that the market keeps on staying put at the current crude oil prices’ level.
The speculation around the future the supply and demand is still high:
Demand- the future demand of major countries’ oil consumption including U.S., Europe, Japan and China;
Supply – OPEC’s future oil production isn’t clear yet, and if OPEC will decide not to raise its output target, this might further push crude oil prices.
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):
23.50 – Report of Japanese Trade balance (for April)
Tentative – Publishing the US Treasury Currency Report by the Department of Treasury
13.30 – US Department of Commerce – Report on Durable Goods
15.30 – EIA report about Crude oil inventories
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