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WTI Oil Could Stay above $50

Robert Scott
WTI Oil Could Stay above $50

Did Trade Talks Impact Oil-Weighted Stocks More than Oil?## US crude oil above $50On January 9, US crude oil active futures settled at $52.36 per barrel—5.2% higher than the last closing level because of the US-China trade talks. On the same day, the S&P 500 Index (SPY), the Dow Jones Industrial Average (DIA), and the S&P Mid-Cap 400 (IVOO) rose 0.4%, 0.4%, and 0.9%, respectively. The rise in oil prices might be important for these equity indexes.## $50 levelOn January 9, US crude oil prices were 5.7% and 3% below Goldman Sachs and the U.S. Energy Information Administration’s price forecast for 2019. So, oil bulls should be careful with their long position. However, oil’s implied volatility has fallen 20.9% in the trailing week—a positive development for oil prices. US oil production has started to show signs of a slowdown by the second quarter. With OPEC and non-OPEC members’ cut, the current supply scenario will likely change. The Brent-WTI spread moved above $9 on January 9—the highest level since December 19. The rebound in the Brent-WTI spread might signal easing oversupply concerns outside the US.## Economic slowdown concernsHowever, concerns about a global economic slowdown could linger around oil prices. On January 9, the US 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity yield spread was at ~25 basis points— just 11 basis points above its lowest level since August 9, 2007. Investors’ demand for a longer-dated security compared to a shorter-dated security might be one of the reasons behind the contraction in the spread.In the last three decades, when the yield spread turned negative, a recession started the next year. Another contraction in the yield spread might increase the concerns about oil’s demand. Oil is a growth-driven asset, which is another problem for oil prices.Continue to Next PartBrowse this series on Market Realist: * Part 2 - Did Trade Talks Impact Oil-Weighted Stocks More than Oil?