Crude oil prices start off the day with moderate rises, just like other major commodities; these rises, however, might switch direction during the day.
Let’s examine the recent updates related to crude oil market for May 31st:
Crude oil prices – May update
On Friday, May 27th, the WTI crude oil prices continued to very moderately incline as it rose by 0.36%; During May, up to last week, WTI spot oil decreased by 11.3%.
Brent oil price nearly remained unchanged as it also inclined by 0.02%; during May Brent oil declined by 9%.
The chart below of the normalized WTI spot oil and Brent oil prices (May 2nd =100) shows that these energy commodities prices started off the month of May with rapid falls and afterwards they have bounced back and didn’t change much during the last few days.
The premium of Brent oil over WTI: this gap reached on Friday, May 27th 14.60$/b. As seen in the chart below, during May, this premium’s changed very sharply and was traded up in the last few days, i.e. the Brent oil price rose higher than WTI spot oil.
One of the strongest correlations between crude oil prices and major currencies remains between Euro to US dollar conversion rate and WTI spot oil prices, as seen in the chart below.
During May, up to date, the strongest correlations were between WTI spot oil price and Euro to US dollar conversion rate, and WTI spot oil price and USD/ CAD.
On Friday, the Euro to US dollar conversion rate rose sharply by 1.23% and reached 1.4319; USD/ CAD fell by 0.16%.
During May, the drop in the Euro to US dollar conversion rate and the rise in the USD/CAD coincide with the falls of crude oil prices. During last week, however the EURO/USD rose by 1.9% and WTI spot price inclined by 3.6%. If the US dollar will continue to weaken against these currencies, we might continue to see a rise in crude oil prices.
Upcoming OPEC meeting on June 8th
The speculation around the upcoming OPEC meeting on June 8th, in Vienna Austria remains high; the main question is whether OPEC will decide to raise its reported oil production or not. There is speculation that Iran might try to keep the current quotas at their level. On the other hand, Saudi Arabia might want seek to raise the current output in order to bring down oil prices to 70-80$ range.
If OPEC won’t increase its oil production in the months to come, this might further tighten the oil market – mainly in Europe and Asia, and consequentially further pressure crude oil prices to rise.
World news – oil markets
Driving Season – as we are entering the driving season there are expectations that there will be a rise in gasoline prices due to higher demand for driving.
Labor report – This week the labor report will be published and will show the main changes during May in the U.S. labor market. According to Bloomberg, there are expectations that the payroll inclined by 185,000 which is lower than the rise in April.
This report indicates the economic progress of the U.S. economy and might affect the US dollar and consequentially major commodities prices such as crude oil.
Despite the recent attempts by Qaddafi to reach a ceasefire between his forces and the rebels and NATO, there is still no clear end in sight for this turmoil.
According to recent reports, the rebels that currently control most of Eastern Libya will not resume the oil production in this region until it will be safe for the workers.
Since the fighting between Qaddafi and the rebels commenced back in February 2011, Libya’s oil production fell from 1.6 million bbl/d back in January 2011 to an estimated at 240 thousand bbl/d in April 2011, according to OPEC monthly report.
The unrest in Yemen progresses: Bloomberg reports of firing on protesters who demonstrated in Square of Taiz.
Yemen protesters are trying to make the current President Ali Abdullah Saleh to step down and relinquish his power; Saleh agreed to step dhow but only if he will receive immunity from future prosecution.
There are reports that suggest Yemen’s oil output dropped by more than half due to pipeline attacks.
One of Yemen’s prime roles in transporting commodities is its control over 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 transporting commodities including oil to from Europe to the East Asia. Up to now, there weren’t any reports of any impediments in the strait.
The protests against the current regime of President Bashar al-Assad continue their fight; the current news from there is of firing against protesters: Over the weekend, Helicopters fired on demonstrators who called for the resignations of Assad.
The European Union announced it will pose sanctions against Syrian officials in protest of the violence in Syria.
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.
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 101.17 USD / barrel, a rise of 0.58 USD/b or 0.58%, as of 06:11*.
The Dated Brent spot oil price inclines by 0.77$/b and it is at 115.55 USD / barrel as of 06:20*.
Thus, the current premium of Brent over WTI is at 14.38$/b.
Crude Oil price outlook and analysis:
Crude oil prices finished last week with moderate rises, asndthey are currently traded up.
I still speculate that in the short term all the concerns regarding the oil market that I have listed above including: the upcoming OPEC meeting, the changes in US dollar, demand concerns in Europe and US, and supply concerns from Libya, 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):
10.00 – Euro Area annual inflation (May)
10.00 – Euro Area unemployment rate
14.00 – Canada overnight rate
2.30 – Australian GDP first quarter 2011
10.20 – ECB president Trichet speaks
15.30 – EIA report about Crude oil inventories
For further reading:
- Weekly outlook for May 30 to June 3
- Oil prices inclined during last week – Weekly recap 23-27 May
- US Petroleum stocks remained unchanged – May 19