Oil Prices – Daily Outlook August 29

Oil prices ended last week with moderate rises after the turbulent they have endured during the previous week. It’s currently not clear yet what were the damages to the East Coast infrastructure due to Hurricane Irene including the oil and natural gas pipelines. This news may effect the oil and gas production. Today, the US pending home sales report will be published. 

Here’s a short analysis of the oil market for today, August 29th:

On Friday, August 26th oil price (WTI) slightly rose by 0.20% to $85.37/b; Brent also slightly inclined by 0.70% to $111.90/b; during August WTI declined by 10.78%; Brent fell by only 3.48%.

The chart below shows the normalized prices of WTI and Brent during August. It shows the rally of Brent and WTI prices in past weeks, but they still didn’t gain back the falls they have endured at the beginning of the month.

The premium of Brent over WTI continues to rise in the past few days; on Friday it rose to $26.53; during August, this premium rose by 31.01%.

US pending Home sales:

This news could serve as a good indicator of the progress of the US housing market and the economic development of the US. The recent new home sales report from last week showed a moderate drop in sales during July, so the expectations on this report aren’t that high. Any further news of a slowdown in US economy might push down the expectations of traders regarding the demand for oil and resulting in a drop in crude oil prices.   

S&P500 / oil prices – August

The S&P500 inclined on Friday by 1.93%. During August the correlation between oil prices and S&P500 was 0.683 for Brent and 0.502 for WTI. This means, as the Stock market inclines, oil prices are likely to follow and rise as well. If the S&P500 will continue to rise today, it might further pull up oil prices.

 Oil price analysis:

The recent rally in the stock market might continue to pull up oil prices. In the near future, I still think that WTI price will remain around $85-$90 mark and Brent around $108-$112.   

 For further reading:

Oil prices Monthly outlook – August 2011

Weekly Outlook for August 29- 2 September

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