Why energy commodities like oil and gas traded lower on the week (Part 1 of 4)
WTI crude oil prices finished slightly lower on the week
On Friday, April 4, the price of the WTI crude front month contract closed at $101.14 per barrel, slightly lower than the $101.67 per barrel we saw the week prior. WTI oil prices dipped and recovered during the week, as oil prices began to fall on Monday and dropped to $99.62 per barrel on Wednesday. The drop in prices was partly because the market continued to fear sluggish demand, as crude demand typically falls in March when refineries shut down units to undergo maintenance and prepare to blend summer-grade gasoline. On Thursday and Friday, however, oil prices bounced back to $100 per barrel and finished at $101.14 per barrel at the end of the week. This rise in prices was mainly supported by positive U.S. economic performance. The Labor Department said on Friday that the U.S. added a seasonally adjusted 192,000 jobs in March. The market reads this as a positive signal for crude prices, as it indicates increasing crude demand.
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.
Browse this series on Market Realist:
- Part 2 - Natural gas is still below $4.50 per MMBtu given spring’s start
- Part 3 - Composite natural gas liquids prices fell over 20% since February
- Part 4 - Why the WTI-Brent oil spread continued to trade narrower
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- Commodity Markets
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