What’s been driving oil prices lately?
Why speculation around upcoming events is driving crude prices (Part 7 of 7)
Weak prices
Oil prices ended the previous week with a sharp upswing driven by a similar downswing in the dollar. Oil prices had fallen to their lowest since September 2010 earlier.
A combination of factors had pushed WTI crude down and brought Brent close to $75 per barrel, marking a ~30% decline in both benchmarks from their June highs.
Weakness in crude prices does not bode well for profits of major oil producing companies like ConocoPhillips (COP), Occidental Petroleum (OXY), and EOG Resources (EOG).
So, ETFs that have these companies among their top holdings, like the Energy Select Sector SPDR ETF (XLE) and the iShares US Energy ETF (IYE) will also feel the pressure of weak crude prices.
What’s driving prices lately?
Crude prices have been ignoring factors like inventories lately. Typically, weekly inventory figures have a big say in what crude prices do.
However, following the bit of rebound at the end of last week, crude prices have remained in a relatively tight range. WTI has been wavering around $75, and it seems as though Brent is receiving a bit of a pull from the $80 level.
Following the bearish inventory data, crude prices did weaken a bit, but found renewed strength after Libya’s OPEC representative hinted at the possibility of agreeing to limit its production to its earlier agreed combined quota of 30 million barrels per day.
This move would remove ~600,000 barrels a day of supply from the world market, which would be bullish for crude prices.
A major reason for weak crude prices across the globe has been the combination of a horizontal drilling and hydrofracking boom in US supply, and OPEC’s refusal to reduce its output to balance an oversupplied market, a role it has historically played.
Finally, given that WTI and Brent have more or less moved together in the last few days, the WTI/Brent spread has remained relatively steady near the -$3.5 per barrel level.
The outcome of OPEC’s meeting on November 27 could cause large swings in crude. Watch Market Realist to see what happens next week. Meanwhile, check out our Energy & Power page for more sector news.
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