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Guest Commentary: Oil Prices Weekly Outlook January 23-27

Guest Commentary: Oil Prices Weekly Outlook January 23-27

2012-01-23 15:03:00
Lior Cohen, Energy Analyst for Trading NRG,
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Oil prices only slightly slipped during last week, which is similar to their slow downward trend in recent weeks. What is up ahead for crude oil prices in the penultimate week of January? Let's analyze the oil market and examine the main news items and events that may influence the oil market.

On Friday, January 20th oil price (WTI) declined by 1.92% to $98.46/b; Brent also fell by 1.13% to $109.63/b; during last week, WTI slipped by 0.24% and Brent by 1.12%.

Guest_Commentary_Oil_Prices_Weekly_Outlook_January_23-27_body_oil_price_f_27.png, Guest Commentary: Oil Prices Weekly Outlook January 23-27

Standard Deviation

The standard deviation of the prices of oil has been declining in recent months as seen in the chart below; this finding suggests that the fluctuations in Brent and WTI have declined.

Guest_Commentary_Oil_Prices_Weekly_Outlook_January_23-27_body_standard_deviation_23.png, Guest Commentary: Oil Prices Weekly Outlook January 23-27

Main Oil Related News Items

U.S. Pending Home Sales: This report present the changes in pending home sales in the U.S. for December 2011; in the November report the pending home sales index rose by 7.3%; if the housing market will continue to show signs of improvement it may also help rally crude oil prices;

U.S Core Durable Goods Report: This monthly report will examine the changes in U.S. orders of durable goods in the manufacturing sector. This report may indirectly present the changes in U.S. demand for oil. During November 2011, manufactured durable goods sharply rose to $207.0 billion;

U.S. New Home Sales: This report will show the changes in new home sales December 2011; in the previous report (November 2011), the sales of new homes rose by 1.6%;

U.S GDP 4Q 2011 Estimate: This will be the first estimate of U.S's GDP for the fourth quarter of 2011. In the third quarter of 2011 the GDP growth rate was 1.8%. This shows a slight increase in the growth rate for the US's GDP. The current expectations are that the growth rate in the fourth quarter will be slightly higher than the third quarter's (for the final estimate of 3Q GDP).

Oil Stocks – Decreased Last Week

U.S. oil stockpiles slightly slipped during last week by 2.0 million barrels and reached 1,747.6 million barrels. The current oil stocks are 45.873 million barrels below oil stocks levels recorded during the same week in 2011.

The upcoming report will be published on Wednesday, January 25th and will refer to the week ending on January 20th.

U.S. Stock Market / Oil– January

The S&P500 rose during the third week of 2012 by 2.04% to reach 1,315 on Friday; during recent months there were strong positive correlations between oil prices and S&P500 (e.g. during January the correlation with WTI was 0.636 and with Brent 0.459). The chart below shows the linear correlations between oil prices and S&P500 during recent months.

If the American stock market indexes will continue to rise during the upcoming week, this may also help rally oil prices.

Guest_Commentary_Oil_Prices_Weekly_Outlook_January_23-27_body_Correlations27_2012.png, Guest Commentary: Oil Prices Weekly Outlook January 23-27

Oil Prices Analysis:

Oil prices didn't do much last week; in fact, after their sharp gain at the beginning of the month they have changed direction and slowly slipped. This change in direction could be due to the growing concerns of a slowdown, mainly in the EU that could adversely affect the demand for oil. The growing tension between Iran and EU doesn't seem to have much of an effect on the oil market for the time being. In the upcoming week there are many news items that may influence the financial markets including the oil market such as the U.S. GDP growth rate, U.S. new home sales and the German business climate survey. Finally, if major exchange rates including EURO and AUD will continue to appreciate against the USD, this may positively affect oil prices.

I speculate that during the fourth week of January, WTI will trade in the range of $98-$104 mark and Brent between $108 and $114.

For further reading:

Weekly Outlook for 23-27 January

Gold and Silver Prices Weekly Outlook for January 23-27

By: Lior Cohen, Energy Analyst for Trading NRG

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