According to EIA, the rolling 60-day correlation between daily percentage changes in the price of Brent crude oil and the Standard & Poor's 500 (S&P 500) equity index fell from +0.45 to +0.12 since August 16. As a very broad generalization, the correlation between oil and equity price movements tends to rise when current and expected demand developments are the primary concern of oil markets and to fall when supply issues are in the limelight.
Since mid-August, the price of oil has moved higher in the wake of growing crude oil supply disruptions and rising concern about the conflict in Syria. Global unplanned crude oil and liquid fuels disruptions averaged 2.7 million barrels per day (bbl/d) in August, the highest level since at least January 2011. EIA estimates that Libya's crude oil production disruption will average 1.4 million barrels per day (bbl/d) in September, up from the estimated 980,000 bbl/d average during August. While Syria itself is not a major oil producer, its proximity to major oil producers in the Middle East may raise concern about the possibility of tighter oil supplies if the conflict spreads. In the last week of August, Brent increased to reach its highest level since February of this year, while the S&P 500 declined recently, EIA says.
At the same time, S&P 500 companies are increasingly reliant on emerging markets for the growth in revenue and profitability that are key determinants of equity values. The percentage of total sales of S&P 500 companies from sales outside the U.S. rose from approximately 41% in 2003 to 48% in 2008. Since then, sales from Asia, Africa, and South America have continued to grow while the share of sales from Europe has declined. As both crude oil demand and the value of S&P 500 equities are increasingly influenced by economic activity in emerging economies, movements in oil and equity markets in response to news regarding current and projected economic conditions in emerging economies are likely to remain positively correlated. However, EIA points out that past developments affecting the oil supply situation have lowered this correlation. Any future supply shocks, either positive or negative, are likely to have a similar effect.
Crude Oil --
October 2013 WTI crude oil opened today at $108.32 and double topped at $109.16 but could not muster a run above $110 as profittaking sent the contract lower. WTI since has made up half of the falloff and ends the day slightly higher at $108.76. Next support lies at $104 and then $102 where psychological $100 may lure WTI back home below Ben Franklin.
U.S. crude inventories fell 0.2 million barrels to 360.0 million barrels -- now 0.9 million barrels above year-ago.
October 13 Brent crude oil futures opened today at $111.58 and chopped higher amid sluggish, punctuated volume to close at 112.64, up $1.14 on the day. After tapering from Friday's highs, the contract fell further as President Obama turned soft on action in Syria, forcing the fear premium into retreat. Next support lies at $111.45 and $111.00 below that. A move below those levels would suggest downside potential to $105 and psychological $100.
Currently, the WTI/Brent crude spread stands at $3.88 with Brent on top -- $2.86 cents softer than the same time last week.
According to EIA, the U.S. average retail price of regular gasoline decreased two cents to $3.59 per gallon as of September 9, 2013, 26 cents lower than last year at this time. Prices were up five cents on the West Coast to $3.80 per gallon; Rocky Mountain prices added half a cent but remained $3.63 per gallon. The largest decrease came in the Midwest, where prices fell six cents to $3.57 per gallon.
The national average diesel fuel price was unchanged from last week at $3.98 per gallon, 15 cents lower than last year at this time. The East Coast price decreased half a cent, but remained $3.99 per gallon. The Midwest and Rocky Mountain prices both lost less than a penny to $3.96 per gallon and $3.93 per gallon, respectively. After increasing one cent, the West Coast price was $4.14 per gallon. The Gulf Coast price increased a tenth of a cent to remain $3.90 per gallon, according to EIA.
Farm Diesel was unchanged this week according to Inputs Monitor data at a regional average of $3.43/gallon with five of the twelve states in our index unchanged. The highest price was recorded again in the state of North Dakota at $3.61, unchanged over last week, while Wisconsin captured the regionwide low at $3.23 -- unchanged on the week.
According to EIA, total U.S. inventories of propane decreased by 0.1 million barrels last week to end at 64.5 million barrels, about 8.2 million barrels (11.3%) lower than the same week last year. Midwest stocks experienced an unseasonable decline of 0.3 million barrels last week. Rocky Mountain/West Coast inventories gained 0.1 million barrels, while the East Coast and Gulf Coast regions were up slightly.
Propylene non-fuel-use inventories represented 4.6% of total propane inventories.
LP moved 2 3/4 cents higher in the Inputs Monitor Index to $1.435. The lowest priced LP in our index is in South Dakota at $1.24 while the high mark is at $1.89 in Indiana.
The national distillate supply added 2.6 million barrels to 132.2 -- 3.6 million barrels above year-ago.
Graphs and text provided by EIA.