Guest Commentary: Oil Weekly Outlook December 19-23
Oil sharply declined during last week after oil had moderately inclined during November and October. The recent FOMC meeting stirred up the commodities markets and may have been among the factors to push down crude oil prices, while other news items from the U.S such as the improved Philly Fed index may have helped curb the drop in oil prices. This week started with the news from North Korea and the death of Kim Jong Il. It's not clear yet how, if any, this news may affect the stability in the region and thus the financial markets.
On Friday, December 16th oil price (WTI) slightly declined by 0.36% to $93.53/b; Brent on the other hand moderately inclined by 0.21% to $104.06/b; during December WTI decreased by 6.81% and Brent by 6.52%.
The chart below presents the development of WTI and Brent during the month (prices are normalized to November 30th).
The premium of Brent over WTI inclined during last week and reached on Friday to $10.53. That being said, during December the premium fell by 3.92%.
Main Oil Related News Items
U.S GDP 2Q 2011 (last estimate): In the preliminary estimates the 3Q2011 GDP growth rate was 2.0%, compared with a 1.3% growth rate at 2Q2011. This shows a slightly higher growth rate for the US's GDP even though the recent Q3 growth rate estimate was revised down; another revision may affect energy traders (for the previous estimate of 3Q GDP).
U.S Core Durable Goods Report: This monthly report will examine the changes in U.S. orders of durable goods in the manufacturing sector during November 2011. This report may indirectly present the changes in U.S. demand for crude oil. During October 2011, manufactured durable goods declined by $1.4 billion to $197.7 billion; Non-defense new orders for capital goods also decreased by $3.5 billion or 4.6% to $71.6 billion;
Oil Stocks – Inclined Last Week
U.S. oil stockpiles rose for the third consecutive week, last week by 2.0 million barrels, or by 0.11%. For the week ending on December 9th oil stockpiles reached 1,751.93 million barrels. The next report will be published on Wednesday, December 21st.
Forex and Oil– December
The EURO/USD declined during last week by 1.08%; this exchange rate had a sharp drop on Tuesday following the FOMC meeting, in which it was decided to not implement another stimulus plan. During last week not only the Euro depreciated against the USD, but also other exchange rates including the AUD declined against the USD. If the USD will not strengthen against the Euro during the upcoming week, it may affect oil to change direction and rise.
U.S. Stock Market / Oil– December
The S&P500 also declined during last week by 1.36% to reach 1,219 on Friday; during recent months there was a strong positive correlation between oil and S&P500 (e.g. during December the correlation with WTI was 0.482 and with Brent 0.476). The chart below shows the development of the linear correlation between oil and S&P500.
If the American stock market indexes will rally from last week's declines, this shift may also push up oil.
Oil took a plunge and sharply dropped last week. This drop was recorded in other commodities such as gold. But the upcoming week might clam the energy markets, if there won't be additional surprises from the U.S. and Europe. If the upcoming reports (listed above) from the U.S. won't be negative and continue to show improvement, then this could also help stabilize oil prices and even help them recover from last week's decline.
Finally Forex and Stocks markets will continue to affect the development of oil prices; thus, if these markets will recover from last week's decline, oil prices are likely to follow and rally as well.
I speculate that during the upcoming week, WTI will revolve around $91-$98 mark and Brent around $102-$109.
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By: Lior Cohen, Energy Analyst for Trading NRG
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.