The week started off with moderate falls for crude oil prices, but this scenario is likely to change direction throughout the day as there are many news items that will pull oil prices to different directions.
Let’s examine the recent news related to the crude oil market for today, May 16th:
Crude oil prices – May
Last week ended with WTI crude oil prices moderately inclined by 0.69%; During May, up to Friday May 13th, WTI spot oil decreased by 12.1%;
Brent oil price also inclined on Friday by 0.97%, and during May Brent oil declined by 10.1%.
The premium of Brent oil over WTI reached on Friday 14.15$/.
The chart above shows that expect on May 10th, crude oil prices ranged in the past couple of weeks within 4$.
Nonetheless, the rapid changes in crude oil prices during May reflects high volatility as seen in the chart below, the std. deviation is currently twice as high as it was during April.
The rapid changes in oil prices during May didn’t diminish the correlation of WTI and Brent oil prices, which means despite the high uncertainty in the oil markets these two energy prices kept on moving in sync.
The US dollar and crude oil during May
During May, the daily changes in crude oil prices were stem, in part, from the changes in the US dollar compared to major currencies.
The chart below shows the strong correlation EURO//USD with crude oil prices including WTI spot oil and Brent oil.
The uncertainty in the financial markets related to the directions of the US and European economies and speculations around their demand for major commodities are reflected in the major commodities prices including crude oil prices.
World news – oil markets
Middle East
The concerns around the stability in the Middle East aren’t just because many of OPEC members are located there, but also because of its pivotal location for transport.
Nigeria – there were reported fights over the weekend between soldiers and fighters of the John Togo-led Niger Delta Liberation Force. This fighting raises the instability in one of the prime exporter of crude oil to the US. Nigeria is among the leading OPEC countries in exporting crude oil to the U.S. with over 31,220 thousands of barrels during January 2011 (it is the fourth largest exporter of crude oil to the U.S.).
Libya – the turmoil and fighting between NATO forces and the rebels and Gaddafi’s forces continues with no clear end in sight. During the recent war in Libya, its oil production fell from 1.6 million bbl/d back in January 2011 to an estimated at 0.4 million bbl/d.
Yemen – The turmoil in Yemen is still far from over. There are still reports of confrontations between the military forces and protestors. 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.
Israel – yesterday, there were reports of shooting incidents on the Israel/ Syrian boarder as dozens of Palestinians crossed it and entered to Majdal Shams in the Golan Heights.
Europe
Euro Area CPI – today, the core CPI will be published of the Euro Area for April 2011. The report is likely to show a rise in CPI mainly due to rising energy prices. This news might affect the Euro currency and consequentially the oil prices as seen above. The recent news related to the Q1 2011 GDP of Europe on Friday caused a sharp fall in the Euro/USD at the end of last week.
US
Ben’s speech – Today, the Federal Reserve chairman will give a speech about the labor market and economic growth. Since the stimulus plan of the Federal Reserve is about to end in June, he’s speech might offer some perspicacity into the future plans of the Fed in order to stimulate the US economy.
Mississippi Flooding – Bloomberg reports that the Mississippi Flooding is threatens the second-largest oil refinery in the U.S. This news might further hike oil prices up in the US if the oil refinery will be damaged.
Obama takes steps to raise domestic oil output – According to Bloomberg, US president said he plans to fight the rising gasoline prices by stimulating the domestic oil production by encouraging oil drilling in Alaska.
Current crude oil prices
Major crude oil prices started off the trading week with moderate falls in the European markets:
The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 98.56 USD / barrel, a fall of 1.09 USD/b or 1.09%, as of 07.31*.
The Dated Brent spot oil price declines by 0.87$/b and it is at 112.92 USD / barrel as of 07.43*.
(* GMT)
Thus, the current premium of Brent over WTI is at 14.36$/b.
Crude Oil price outlook and analysis:
During last week crude oil prices had many shifts in direction but didn’t do much and remained around the 100$ mark for WTI spot oil and 110$ for Brent oil. There are two different forces that will likely to affect crude oil prices during the week: from the demand side – the speculation around the major economies’ including Europe and US; and from the supply side –the speculation around the oil market including the oil production of OEPC. These forces seem to pull oil prices in different directions: the demand pulls oil prices down, and supply pulls it up.
The uncertainty in the European demand also relates to its debt crisis and its effect on economic condition of Euro Area; and from the US side, the future steps that the Fed to consider as the Quantitative easing plan will end in June..
I still speculate that in the short term, the supply and demand forces will cancel one another and crude oil prices will continue to trade around the 100$ mark for WTI and 110$ for Brent oil; but these opposing forces will continue to affect the uncertainty in the oil market and will reflect 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):
Today
10:00 – Euro Area CPI and core monthly inflation (April)
14.00 – Ben Bernanke, Chairman of Fed, speaks
Tomorrow
2.30 – Monetary Policy meeting Australia’s Bank
[ratings]
For further reading:
- Weekly outlook for May 16-20
- Oil prices moderately declined last week – Weekly recap 9-13 May
- US Petroleum stocks keep on soaring – May 12