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Guest Commentary: Oil Prices Daily Outlook 10.19.2011

Guest Commentary: Oil Prices Daily Outlook 10.19.2011

2011-10-19 15:17:00
Lior Cohen, Energy Analyst for Trading NRG,

Oil Prices – Daily Outlook October 19

Oil prices changed direction again and bounced back from the falls they had recorded on Monday. The rally in the American and European stock markets may have contributed to this rally. Today, U.S. Consumer Price Index will be published; the U.S. building permits and housing starts, and the EIA oil stockpiles report.

On Monday, October 18th oil price (WTI) sharply inclined by 2.27% to $88.34/b; Brent slightly increase by 0.90% to $112.68/b; during October WTI rose by 7.90% and Brent by 6.89%.

The chart below presents the prices development of WTI and Brent during October (normalized prices Sept 30=100).

Guest_Commentary_Oil_Prices_Daily_Outlook_10.19.2011_body_oil_price.png, Guest Commentary: Oil Prices Daily Outlook 10.19.2011

The premium of Brent over WTI fell on Tuesday to $24.34. During October the premium inclined by 3.35%.

Guest_Commentary_Oil_Prices_Daily_Outlook_10.19.2011_body_Difference.png, Guest Commentary: Oil Prices Daily Outlook 10.19.2011

U.S PPI Sharply Inclined in September

The U.S producer price index sharp increase in September by 0.8%; the energy index is one of the prime factors that rose in September by 2.3%, the Producer Price index excluding food and energy slightly increased by 0.2%. This index serves as a good indictor for the upcoming U.S CPI to be published today.

On Today's Agenda:

Oil Stockpiles Report: the Energy Information Administration will publish its weekly report on the U.S oil market for last week. The current estimates are that the crude oil stockpiles dropped by 1.6 million barrels according to Bloomberg; in the previous report, the U.S oil stocks declined by 1.4 million barrels to 1,769.1 million barrels (see here the recent oil stockpiles review);

U.S CPI: This monthly report will show the main changes in the consumer price index during September. According to the US Bureau of Labor statistics for August 2011, the CPI inclined by 0.4% and over the last 12 months by 3.8%. The core CPI inclined in August by 0.2%;

U.S. Building Permits & Housing Starts Report: The recent report showed an improvement in the building permits during August 2011, while the adjusted annual rate for housing starts fell during the month (see here the recent review);

Forex and Oil– October

The AUD/USD inclined on Tuesday by 1.03%. Furthermore, the USD also slightly depreciated against the CAD. The speculation around the European crisis continues to influence forex and commodities traders. If the USD will depreciate against the risk currencies (AUD, CAD) as it in most of October, this may also affect oil prices to increase.

U.S. Stock Market / Oil– October

The S&P500 sharply inclined on Tuesday by 2.04% to 1,225.38. During recent months there was a strong positive correlation between oil and S&P500 (e.g. for WTI it was 0.583 and for Brent it was 0.579 in October (UTD), as seen in the chart below.

Guest_Commentary_Oil_Prices_Daily_Outlook_10.19.2011_body_Correlations_oil.png, Guest Commentary: Oil Prices Daily Outlook 10.19.2011

The recent rally of the American stock markets in recent weeks seems to have contributed to the rally of oil.

Oil Outlook and Analysis:

According to a recent report by Goldman Sachs, their analysts project an improvement in Europe's economic outlook along with a drop in crude oil stockpiles may push Brent back up. The upcoming U.S. CPI and oil stocks may affect WTI during the day. But more than other fundamental factors the effect of the stock market seems to be among the main factors affecting oil prices. The speculation revolving the next step of the Euro leaders in resolving the debt crisis will continue to influence the financial markets including oil market. I still speculate that during the week WTI will settle around $85-$92 mark and Brent around $108-$115.

For further reading:

Weekly Outlook for October 17-21

Natural gas prices outlook for October 2011

Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.

By: Lior Cohen, Energy Analyst for Trading NRG

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