Will the recent rally in oil prices last? Daily outlook 26 May

Crude oil prices have enjoyed from a rally in the last couple of day. Will this rally continue? The current status in the commodities markets show that crude oil prices are traded down. What is stimulating the recent rally?

Let’s examine the crude oil market for today, May 26th:

Crude oil prices – May update

Crude oil prices continued their rally yesterday, May 25th: WTI spot oil inclined by 1.60%; During May, up to yesterday, WTI spot oil decreased by 11.2%.

Brent oil price inclined by 2.38%; during May Brent oil declined by 9%.

The chart below of the normalized WTI spot oil and Brent oil prices (May 2=100) shows the recent rally of these energy commodities in the last few days.

Crude spot oil prices 2011 Brent oil and WTI spot oil  2011 May 26 The premium of Brent oil over WTI: this premium reached on Wednesday, May 25th 14.48$/b. Despite the fluctuations in this premium as seen in the chart below:

Difference between Brent and WTI crude spot oil price 2011 May 26 The correlation between the daily percent changes of these two commodities continues to be positive and strong and range next to the 70% mark.

Correlations wti and Brent crude spot oil prices  Dec 2010- May 26 2011 Crude oil prices and major currencies during May

There is still a strong linear correlation among crude oil prices (daily percent changes), Euro to US dollar conversion rate, and USD/ CAD exchange rates.

Correlations wti and Brent spot oil prices with MAJOR CURRENCIES MAY 26 2011 Yesterday, the Euro to US dollar conversion rate moderately declined by 0.09% and reached 1.4088.

The USD/ CAD exchange rate also inclined by 0.07% as the USD appreciated against the CAD.

Yesterday’s strengthening of the US dollar compared to these major currencies doesn’t coincide with the rises of crude oil prices and their linear correlation. This might suggest that the rally of crude oil prices were stem from other than the fluctuations in US dollar.

Petroleum stocks in the US

The US Energy Information Administration published yesterday its weekly report on petroleum stocks: U.S. Petroleum and oil stocks moderately inclined during last week by 6.7 million barrels, or by 0.38%. For the week ending on May 20th the oil stocks reached 1,780.7 million barrels – the highest level since February 18th, 2011 (See here the recent petroleum report).

The chart below shows the petroleum and oil stocks levels compared to the WTI crude oil prices during 2010-2011.

Weekly U.S. Ending Stocks of Crude Oil and WTI spot oil price 2011 May 20 In total, during last week there were declines in oil imports and rises in refineries inputs, U.S. production and petroleum stocks.

Despite these falls in US crude oil stocks, Bloomberg state that US fuel demand is inclining in the U.S.: distillate consumption was the highest since the week ended April 15, and the total fuel demand climbed by 2.2% to 18.9 million bbl/d.

Goldman Sachs and Morgan Stanly raise their oil price forecast

According to Bloomberg, Goldman Sachs and JP Morgan are go long on major commodities: Goldman Sachs increased its forecasts on crude oil (Brent) to 120$ for the next six months and to 130$ for the next 12 months. Morgan Stanly raised its estimates for 2011 by more 20% to 120$.

These recommendations are probably among the reasons for crude oil prices’ rally in the last few days.

Current crude oil prices

Major crude oil prices are currently traded with very moderate rises in the European markets:

The Nymex crude oil price, short term futures (June 2011 delivery) is traded at 101.07 USD / barrel, a fall of 0.25 USD/b or 0.25%, as of 14.32*.

The Dated Brent spot oil price declines by 0.04$/b and it is at 115.16 USD / barrel as of 14.32*.

(* GMT)

Thus, the current premium of Brent over WTI is at 14.09$/b.

Crude Oil price outlook and analysis:

Crude oil prices‘ recent rally in the last few days might be driven by the new wind major commodities got from the shift in the big investment banks’ recommendations to go long on gold and oil.

I speculate that this news might continue to affect crude oil prices and drive them further up in the next day or two, but eventually, all things being equal, crude oil prices will remain high but will remain near the 100-105$ mark for WTI spot oil and 115$ for Brent oil.

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

13:30– US GDP 1Q 2011report

15.30 – EIA report about Natural gas storage


09.00 – Monetary developments in the Euro area

15.00 –US pending home sales


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