Oil prices started to trade this week with sharp falls which is in sync with the markets’ reaction to the news that came over the weekend of Standard and Poor’s downgrading the US credit rating; Today, the Chinese inflation rate for July will be published.
Here’s a short analysis and outlook of the oil market for today, August 8th:
On Friday, August 5th crude oil price (WTI) bounced back from the sharp falls on Thursday and inclined by 0.29% to $86.88/b; this is after for five consecutive business days oil prices were traded down.
Brent also rose by 2.24% to $109.76/b; during August Brent declined by 5.32%; WTI fell by 9.2%..
S&P500 / oil prices – August update
The S&P500 along with other stock indexes from around the world fell very sharply during last week mainly on Thursday. Currently there are expectations that the falls will resume in the US stock market; if this will be true it may further pull down major energy commodities prices including oil prices. The correlation between oil prices and S&P500 isn’t reliable but in August so far was very strong as seen in the chart below, which indicates that the falls in Wall Street are affecting the oil traders.
USD/ oil prices – August update
On Friday, Euro/USD inclined by 1.34%; the USD/Yen fell by 0.62%; this means that USD very sharply depreciated against major currencies; this direction is inline with the moderate rises of oil prices on Friday; there is a chance that the US dollar will trade down today; if this will be the case, it might curb some of the drop in oil prices. In the chart below are the correlations between oil prices and major exchange rates. Major currencies are strongly correlated with oil prices.
Oil price outlook:
Oil prices have experienced a sharp downward trend in recent days as the stock markets in the US also registered sharp falls; these sharp falls in the oil market are less likely to be connected to the changes in supply and demand mainly due to the sharp and prompt reaction of the market that is in sync with the falls of S&P500. I speculate that oil prices will continue to come down and will settle around the $80-$85 mark for WTI and $100-$105 for Brent.
For further reading: Weekly outlook for August 8-12
Lior Cohen, M.A. commodities analyst and blogger at Trading NRG.