Oil Prices – Daily Outlook October 25

Oil prices very sharply inclined yesterday; this increase is probably related to the renewed expectations of sharp gains in the demand for oil in the American market. Today, U.S Consumer Confidence report will be published; Canada’s Retails Sales; and Canada’s Overnight Rate.

On Monday, October 24th oil price (WTI) sharply increased by 4.53% to $91.17/b; Brent also rose by 1.24% to $112.15/b; during October WTI rose by 11.36% and Brent by 6.38%.

On Today’s Agenda:

U.S Consumer Confidence: the consumer confidence index remained nearly unchanged in September compared with August’s index. The current expectations are that this index may continue to decline in the upcoming report;

Core Retails Sales Canada: This report presents the changes in the retails sales in Canada in August. It may affect the USD/CAD and thus also the crude oil prices (see here the full report);

Canada Overnight Rate: The Bank of Canada will publish its decision regarding the overnight interest rate, which remained unchanged at 1% as of last month;  

 Forex Market and Oil– October

The AUD/USD increased again on Monday by 0.95%. If the USD will further depreciate against the risk currencies (AUD, CAD) as it did during recent week, this may also affect oil prices to incline.

 U.S. Stock Market / Oil– October

The S&P500 sharply rose on Monday by 1.29% to 1,254 and completed a rally of 10.85% during October (UTD); during recent months there was a strong positive correlation between oil prices and S&P500 (e.g. during October the correlation with WTI was 0.620 and with Brent 0.597). The chart below shows the progress of the WTI and Brent vs. the S&P500 during October.

If the American stock markets will continue their rally as they did in recent weeks, it may also contribute to the gains in oil (especially in the WTI).

Oil Analysis:

The recent gains in the American oil market as there are renewed expectations of growth in the demand for oil in the U.S. may have helped close the gap between Brent and WTI in recent weeks. Furthermore, the ongoing rally in the American stock markets also helped push up the WTI, while the debacle in the negotiations in the EU summit may have curbed the expectations of growth in the demand for oil in the European market so that Brent is rising much more moderately than WTI.

Therefore I speculate that during the week WTI will revolve around $87-$95 mark and Brent around $108-$115.  

For further reading:

Gold & Silver Prices – Daily Outlook October 25

Crude Oil Prices – Weekly Recap 17-21 October

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

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