How the jobs report and inventory figures moved WTI crude prices

Market Realist

Why energy commodities like oil and gas finished flat on the week (Part 2 of 4)

(Continued from Part 1)

WTI crude oil prices traded lower last week

On May 2, the price of the WTI crude front month contract closed at $99.76 per barrel, 1% lower than the $100.60 per barrel close the week prior. During the week, a report from the U.S. Energy Information Administration showed record-high U.S. oil inventory figures, which had a bearish effect on WTI prices. However, a better-than-expected job report gave oil prices some support.

Last Wednesday, April 30, the latest crude inventories report released by EIA showed that there was a continuous build in WTI crude supplies for the week ended April 25, pushing the U.S. crude-oil-supplies to stand at 399.4 million barrels, the highest level since the EIA began keeping track of weekly storage levels in 1982. The market read this as bearish news for crude prices, as the record-high U.S. supplies would overwhelm the capacity of refineries to process oil. As a result, WTI traded lower and closed at $99.74 per barrels on that day. Last Thursday, WTI continued to trade lower to close at $99.42 per barrel.

Last Friday, however, oil prices were boosted by a better-than-expected job report for the month of April. The U.S. Bureau of Labor Statistics reported that the U.S. added 288,000 new jobs in April, compared to analysts’ expectation of 218,000. The news acted as a positive catalyst for crude prices, as it indicated a stronger demand for oil in the future. WTI prices traded slightly up to $99.76 per barrel on that day.

WTI crude prices over the past year have remained relatively high and stable

For most of the past year, WTI crude oil has been range-bound between ~$85 per barrel and ~$110 per barrel. Higher crude prices generally have a positive effect on stocks in the energy sector. The graph below shows WTI crude oil price movements compared to the Energy Select Sector SPDR (XLE)—which tracks companies from the oil, gas, and consumable fuels industry, and the energy equipment and services industries and EOG on a percentage change basis from January 2007 onward. The movements have been in the same direction for the past couple of years.

Crude oil prices are a major driver in the valuation of many energy investments. Oil prices affect the revenues of oil producers, and consequently, the amount of money oil producers are incentivized to spend on oilfield services. WTI crude is a significant benchmark tracked by investors with domestic energy holdings in companies such as Chesapeake Energy (CHK), EOG Resources (EOG), Pioneer Natural Resources (PXD), and Range Resources (RRC). Plus, crude prices can have a significant effect on energy ETFs such as the Energy Select Sector SPDR (XLE).

Read the next part of this series to find out about important changes in natural gas prices.

Continue to Part 3

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