The zigzag in crude oil prices during this week only shows of the many factors that affect them, and the high speculation that surrounds the financial markets;
Let’s examine the recent news related to the crude oil market for today, May 12th:
Crude oil prices – May
Yesterday, crude oil prices sharply declined by 5.01%; During May, up to yesterday May 11th, WTI spot oil decreased by 13.4%;
Brent oil price also declined yesterday by 4.43%, and during May Brent oil declined by 11.1%.
The premium of Brent oil over WTI reached yesterday 14.39$/b – the highest gap in May so far.
There is also a rapid rise in the fluctuations in crude oil prices: as seen in the chart below of the std. deviation of daily prices on a monthly scale in the past six months, the current std. deviations of Brent oil price and WTI spot oil prices are nearly three times higher during May than in April.
The premium of Brent oil over WTI spot oil started to pick up this week but is still around the 10 and 15$.
I still think that the premium will continue to moderately fluctuate, but will remain around a double figure gap ranging between 10 and 13 USD.
Petroleum stocks in the US
The EIA published yesterday its weekly report on petroleum market: the U.S. Petroleum and oil stocks keep on rising and during last week they inclined by 6.5 million barrels, a 0.36% increase compared to the previous week. For the week ending on May 6th the oil stocks reached 1,774.0 million barrels – the highest level since February 25th, 2011 (See here the recent petroleum report).
The chart below presents the petroleum and oil stocks levels compared to the WTI crude oil prices during 2011, and shows that there is an upward trend in recent weeks in oil stocks.
This report shows that despite the rise in oil stocks, which may indicate that the oil market in the U.S. is getting looser (by increasing production and imports, and consumption might be declining), the crude oil prices continue to rise; this is an indication that the recent rises in oil prices aren’t related to demand and supply forces in the U.S. and might be stemmed from other exogenous factors such as speculation.
The effect of EURO/ US dollar on crude oil
During May, the drastic fluctuations in crude oil prices were stem, in part, from the changes in the US dollar compared to major currencies mainly the Euro.
The chart below shows the strong correlation EURO/USD with crude oil prices including WTI spot oil and Brent oil.
The rapid changes in the EURO/USD continue to seemingly affect crude oil prices, more than in the past.
The uncertainty in the financial markets related to the direction of the US dollar is reflected in the major commodities prices including crude oil prices.
The testimony of Ben Bernanke
Today, the Federal Reserve chairman will testify in the US senate. In this testimony the market will keep close tabs to figure out what will be the next move of the US Fed as the quantitative easing plan will end in June; In the quantitative easing plan the Federal Reserve printed 600 billion US dollar in the since November 2010, and purchased bonds including US government bonds in an attempt to stimulate the US economy.
Current crude oil prices
Major crude oil prices are currently traded with moderate falls in the European markets:
The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 96.81 USD / barrel, a fall of 1.4 USD/b or 1.43%, as of 10.02*.
The Dated Brent spot oil price declines by 0.48$/b and it is at 112.12 USD / barrel as of 10.13*.
Thus, the current premium of Brent over WTI is at 15.31$/b.
Crude Oil price outlook and analysis:
During the week crude oil prices seem to have been fluctuating with no clear trend and high volatility. There are still concerns related not only to the turmoil in the Middle East, but also to the speculation in the financial markets in regards to the economic condition of US and Europe.
The reasons for the uncertainty relate to the debt concerns in several countries in Europe such as Greece and Portugal and the future steps that the Fed might consider as the Quantitative easing plan will end in June (for US).
I still speculate that in the short term, crude oil prices will remain near the 100$ mark and the current uncertainty in the currencies market will reflect in high volatility in the commodities markets..
Here is a reminder of the top events and reports that are planed for today and tomorrow (all times GMT):
13.30 – Department of Labor report – US unemployment claims
15.00 – Ben Bernanke, Chairman of Fed, testifies
15.30 – EIA report about Natural gas storage
13.30 – Report on US CPI
For further reading:
- Weekly outlook for May 9-13
- Oil prices fell sharply last week – Weekly recap 2-6 May
- US Petroleum stocks keep on soaring – May 12