Crude oil prices took a big hit to the chin and fell very sharply during the last week. This correction was expected to occur; only the timing was the missing factor. Goldman Sachs already advised its clients to sell major commodities as they are overpriced.
The turmoil in the Middle East is still present, but one of the factors related to the decline in oil prices came from the strengthening of the US dollar; as the US dollar gets stronger, usually it adversely affects commodities prices as they decline. Several news items were published during the week that might have contributed to a stronger dollar:
- ECB president – Jean-Claude Trichet left the interest rate unchanged, despite expectations to the contraire;
- The US labor report showed good figures, which might have also strengthened the US dollar compared to major currencies.
These news items (and there were more) caused the EURO/USD to drop very sharply along with crude oil prices.
The recent EIA petroleum report showed a slow down in the US oil market which might indicate a decrease in demand for crude oil, which might be related to the high prices and the seasonality effect.
Let examine the main changes that occur during last week (May 2nd to May 6th) regarding crude oil prices (Brent oil and WTI), and a summary of the recent EIA petroleum report:
Crude oil prices – highlights
WTI spot oil price (weekly average) decreased by 5.63% and reached 105.97$/b, compared to last week’s 112.59$/b. The average daily percent change of crude oil price (WTI) was 2.99%, and it decreased by 14.02% from beginning to end of the week.
NYMEX Futures Price (May delivery), much like WTI spot oil price declined by 14.39% during the week, and it reached 97.18$/b on Friday – its lowest price level since March 15th 2011.
Europe Brent spot oil price fell by 13.26% from beginning to end, and its average price decreased by 5.53% compared to previous week’s average.
The difference between the Brent and WTI spot prices reached on Friday 12.67$/b; the average premium didn’t change much (compared to the previous week) and reached 12.67$/b during the week with a standard deviation of 1.24$/b.
Crude oil charts
The following chart presets the trend of WTI spot oil price, NYMEX Futures Prices (June delivery) and Europe Brent spot oil price during last week:
The chart shows that WTI and Brent spot oil prices fell very sharply especially during the middle of the week.
The second graph shows the daily percent changes (i.e. changes around the trend) of crude oil price (WTI spot oil, WTI future, Brent spot oil):
The graph shows that Brent and WTI spot oil fluctuated at a very similar pace throughout the week and presented sharp declines during most of the week.
Petroleum Stocks –highlights:
On last week’s published EIA report, about petroleum stocks, consumption and production: U.S. Petroleum and oil stocks continued to increase during last week by 7.5 million barrels, a 0.43% increase compared to the previous week. For the week ending on April 29th the oil stocks reached 1,767.6 million barrels. This was the largest injection since August 20th, 2010.
The chart below presents the petroleum and oil stocks levels compared to the WTI crude oil prices in 2011.
The chart shows that in the last few weeks despite the rise petroleum and oil stocks the WTI spot oil prices continued to pick up and increase. The linear correlation of these two data series (their weekly percent changes) is at -0.07, while their data series (the trend) have a -0.89 linear correlation.
In total, during last week there were declines in US production, imports and refineries inputs and rises in petroleum stocks and oil prices,.
For further reading (on this site):
- Weekly outlook for May 2-6
- Oil prices fell very sharply yesterday, what’s next? – Oil outlook 6 May
- Petroleum and oil stocks in the US continued to rise – May 5
Previous issues of weekly report:
- Oil prices moderately inclined last week – Weekly recap 25-29 April
- Oil prices continued their rally during the week – 18-21 April
- Oil prices remained unchanged – Weekly recap 11-15 April