Crude Bear Market: The Role of Inventory, OPEC, and the Dollar
Crude oil prices fall
February WTI (West Texas Intermediate) crude oil prices fell by 2.1% and settled at $35.97 per barrel on Tuesday, January 5, 2016. Likewise, Brent crude oil prices fell by 2% and closed at $36.4 per barrel on Tuesday. Prices fell due to a consensus of rising US crude oil inventory and an appreciating dollar. ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell in yesterday’s trade. They fell by 2.9% and 5.2%, respectively.
The EIA (U.S. Energy Information Administration) is scheduled to release its weekly petroleum status report on January 6, 2016. The consensus of rising crude oil inventory is weighing on the crude oil market. Read more about the US inventory in the next part of the series.
Meanwhile, speculation of slowing crude oil demand from China is also dragging crude oil prices lower. For more on this, check out China’s Crude Oil Imports: Bright Spot in 2016 Oil Market?
Crude oil prices are trading close to their lows in December 2015. WTI and Brent tested historic lows of 2009 and 2004 in December 2015. For more on crude oil price lows, you can read Why History Suggests that Crude Oil May Be Low for Next 2 Decades. However, crude oil prices surged on early trades on January 4, 2014, due to tensions in the Middle East. The rally was short-lived as traders expect that oil markets are oversupplied by 2 MMbpd (million barrels per day) of crude oil.
The roller coaster ride of falling crude oil prices affects oil producers like Murphy (MUR), ConocoPhillips (COP), Anadarko Petroleum (APC), and Noble Energy (NBL).
OPEC’s (Organization of the Petroleum Exporting Countries) production fell in December 2015 as per the Reuters surveys. However, it’s close to record production levels. We’ll talk more about that in the fourth part of the series. Crude oil prices fell more by than 65% since June 2014 due to oversupply concerns. Record low oil prices are also putting pressure on broader indexes like the S&P 500 Index (SPY).
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