Crude Oil Bull Market: Crude Oil Prices Rise 21% in 6 Days
Crude Oil Has Fallen 77% since June 2014: Time for Recovery?
Crude oil price movement
WTI (West Texas Intermediate) crude oil futures contracts for March delivery rose by 2.7% and closed at $32.30 per barrel in yesterday’s trade. Similarly, Brent crude oil futures contracts rose by 4% and settled at $33.10 per barrel. Oil prices were overshadowed by a possible alliance between Russia and OPEC (Organization of the Petroleum Exporting Countries) to curb oil production despite rising US commercial crude oil inventories. The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose by 2.3% and 4.5%, respectively. Among broader indexes, the SPDR S&P 500 ETF (SPY) diverged from the direction of crude oil prices in yesterday’s trade.
Russia and OPEC
On Wednesday, January 27, 2016, the Ministry of Energy of the Russian Federation reported that a possible alliance with OPEC’s kingpin, Saudi Arabia, could lead to a collective production cut. Similarly, Iraq’s oil minister stated that OPEC and Russia should work collaboratively to curb oil production for short-term and long-term benefits. Venezuela, Oman, and Nigeria are interested in an emergency meeting to curb oil production. However, Saudi Arabia is reluctant and wants to maintain record oil production to increase its market share and long-term revenue through oil exports. For more on the possible alliance, read Will Russia and OPEC Join Hands and Cut Crude Oil Production? Also, read War of Words: OPEC Nations and the Crude Oil Market.
Oil prices have risen by more than 21% in the last six trading sessions due to the speculation of oil production cuts, short covering, and bargain buying. Technically, crude oil has entered into a short-term bull market.
US dollar falls
Yesterday, the US Federal Reserve reported that it would keep the US interest rate unchanged. Thus, the US dollar traded lower against the basket of currencies yesterday. However, the improving labor market and moderate US growth will push for a rate hike later in 2016. The depreciating US dollar boosted oil prices, as it makes oil more affordable for oil-importing economies. The short-term bull market benefits US shale oil producers like Whiting Petroleum (WLL), Hess (HES), Noble Energy (NBL), EOG Resources (EOG), and Continental Resources (CLR).
Stimulus programs and monetary easing
The stimulus programs from Europe and Japan, coupled with China’s monetary easing and refinery demand, will boost economic activity and drive demand for oil.
The speculation of surging demand has also boosted oil prices this week. Brent crude oil was trading at a premium of $0.90 per barrel to WTI crude oil yesterday. However, we could see this change in 2016. For more on this, read Why WTI Crude Oil Could Trade at a Premium to Brent Oil in 2016.
The estimates for higher WTI crude oil prices affect oil refiners like Tesoro (TSO), Valero Energy (VLO), and Phillips 66 (PSX). Oil prices have fallen by 77% since June 2014 due to long-term oversupply concerns. Iran’s plans to scale up crude oil production in 2016 and record US and global inventories will put pressure on oil prices. Read more about the effects of the latest crude oil inventory report in the next part of this series.
Browse this series on Market Realist:
