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Guest Commentary: Oil Prices Weekly Outlook December 26-30

Guest Commentary: Oil Prices Weekly Outlook December 26-30

2011-12-26 15:24:00
Lior Cohen, Energy Analyst for Trading NRG,
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Oil prices made a comeback and recovered during the recent week from their sharp tumble a week earlier. The positive news from the U.S. including the rally in the U.S. housing starts, the rise in demand for core durable goods, and the sharp drop in the U.S's crude oil stockpiles; on the other side of the globe the rising tensions between Iran and the West maybe among the factors to raise the risk level of a potential impediment on oil's flow from Iran to Europe. For the final week of the year, let's examine what is up ahead for oil.

On Friday, December 23rd oil price (WTI) slightly inclined by 0.15% to $99.63/b; Brent also moderately inclined by 0.36% to $109.25/b; during December WTI decreased by 0.73% and Brent by 1.86%.

The chart below presents the development of WTI and Brent during the month (prices are normalized to November 30th). It shows the fall and rise of both oil prices in the past couple of weeks.

uest_Commentary_Oil_Prices_Weekly_Outlook_December_26-30_body_Crude_s_26.png, Guest Commentary: Oil Prices Weekly Outlook December 26-30

The premium of Brent over WTI slipped during last week and reached on Friday to $9.62. Furthermore, during December the premium sharply declined by 12.23%.

uest_Commentary_Oil_Prices_Weekly_Outlook_December_26-30_body_Difference_ber_26.png, Guest Commentary: Oil Prices Weekly Outlook December 26-30

Main Oil Related News Items

U.S Consumer Confidence: in the recent report, the consumer confidence index rallied in November compared to October; this report could affect commodities markets mainly the natural gas market;

U.S. Pending Home Sales: This report shows the major changes in pending home sales in the U.S. for November 2011; in the recent report the pending home sales index rose by 10.4%. This report will be another indicator for the development of American real estate market;

China Manufacturing PMI: according to the HSBC Manufacturing PMI report regarding November the Manufacturing PMI decline to 47.7; this index indicates the changes in China's manufacturing sectors growth rate; if this downward trend will continue, this may also adversely affect oil prices; (see here last China's GDP report);

Oil Stockpiles – Sharply Declined Last Week

U.S. oil stockpiles sharply declined last week by 18.17 million barrels, or by 1.04%. For the week ending on December 9th oil stockpiles reached 1,733.76 million barrels. This decline might be an indication that the demand for oil was on the rise during last week. The next report will be published on Wednesday, January 4th.

Forex Market and Oil– December

The EURO/USD didn't do much during last week and slightly declined by 0.02%, while AUD/USD rose by 1.69%; the strong relation between oil prices and AUD/USD might be among the factors to help push up oil prices. If the USD will weaken against the Euro and AUD during the upcoming week, it may affect oil to further rise.

U.S. Stock Market / Oil– December

The S&P500 also sharply rose during last week by 3.74% to reach 1,265 on Friday; during recent months there was a strong positive correlation between oil prices and S&P500. The chart below presents the development of the linear correlation between oil prices and S&P500 during recent months.

If the American stock market indexes will continue to rally during the week, this may also push up oil prices.

uest_Commentary_Oil_Prices_Weekly_Outlook_December_26-30_body_Correlations_26_2011.png, Guest Commentary: Oil Prices Weekly Outlook December 26-30

Oil Forecast and Analysis:

Oil prices made a comeback from the sharp plunge that was recorded a couple of weeks ago.

The last week of the year will probably be a short one with light trading. That being said, there could be some shifts if the upcoming U.S report will be negative and thus may pull down oil prices. If the forex and stock markets will continue to rally this may also help push up oil prices for the last week of 2011.

I speculate that during the last week of the year, WTI will revolve around $95-$103 mark and Brent around $105-$113.

For further reading:

Gold and Silver Prices Weekly Outlook for December 26-30

By: Lior Cohen, Energy Analyst for Trading NRG

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