You can forget from the fundamentals for now, the oil market reacts very sharply to the shifts in directions of the US stock markets. Due to the falls in US stock markets, oil prices fell very sharply yesterday. Today, the Canadian core consumer price index will be published.
Here’s a short analysis of the oil market for today, August 19th:
On Thursday, August 18th oil price (WTI) fell very sharply by 5.94% to $82.38/b; Brent also declined by 3.36% to $106.93/b; during August WTI declined by 13.9%; Brent fell by 7.76%.
The premium of Brent over WTI sharply inclined on Thursday August 18th to $24.55/b – the widest gap between these two oil prices; during August this premium rose by 21.23%, mainly because WTI price declined by a sharper rate than Brent did. This also means that the gap is not closing but actually getting wider.
S&P500 / oil prices – August update
The S&P500 along with other stock indexes sharply fell yesterday: the S&P500 fell by 4.46% – the sharpest fall since August 10th (last week), during the same week S&P rating agency downgraded the credit rating of the US. The correlation between oil and S&P500 isn’t reliable but was very strong and positive in recent months including August so far. This means, as the Stock market falls, oil prices soon follow and decline as well. If the S&P500 will continue to fall today, it might further push down oil.
U.S. existing home sales
Following the decline in US housing starts and building permits in July 2011, the U.S. existing home sales also showed a slow down. In the recent report, the seasonally adjusted annual rate fell by 3.5% to 4.67 million home sales. This news might have rekindled the falls in the stock markets over concerns of a US recession.
Oil price analysis:
Oil prices fell very sharply over the precipitous decline of major stock market index including the S&P500, NASDAQ and Dow. Despite these falls, oil prices are likely to regain some of these losses up ahead. The US housing report on existing home sales probably help push not only oil prices but also stock markets indexes down as it rekindled the market belief that the US is heading towards a slowdown. If the US stock markets will resume their sharp falls it will likely to cause oil prices to trade down as well. I still think that oil prices fell too sharply too soon and will make a gradual correction in the days to come.
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.