Why Ukraine tensions and inventory levels support WTI oil prices

Market Realist

Ukraine and Seaway pipeline drive gas prices down and oil up (Part 1 of 4)

WTI crude oil prices rose slightly on the week

On Friday, March 21, the price of the WTI crude front month contract closed at $99.46 per barrel, compared to $98.89 per barrel the week prior. Oil prices were supported by concerns that tensions could rise in the Russia-Ukraine face-off, with the vote on Crimean secession as well as bullish inventory figures. Later on Friday, Russian President Vladimir Putin signed a law formalizing Crimea’s annexation, triggering the worst East-West crisis since the Cold War. After the EU deal was signed, WTI futures climbed to 1.4% and Brent gained 1.2%. The tensions between Ukraine and Russ ia have caused the markets to fear the risk of a possible war, which might have a serious impact on the global financial markets and energy prices, as Russia supplies significant amounts of natural gas and crude oil to world markets. 

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

Continue to Part 2

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