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Crude Oil Tumbled on Inventory Build, Profit Booking, and US Dollar

Gordon Kristopher

How Crude Oil Inventory Could Limit Upside for Crude Oil Market

Crude oil price fell 

May WTI (West Texas Intermediate) crude oil futures contracts trading on NYMEX (New York Mercantile Exchange) fell by 4% and closed at $39.75 per barrel on Wednesday, March 23, 2016. Brent crude oil futures trading on ICE (Intercontinental Exchange) also fell by 3.2% to $40.47 per barrel. Oil prices fell due to a massive rise in US crude inventories. The appreciating US dollar also weighed on crude oil prices. The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) fell by 4% and 8%, respectively, on March 23, 2016. The SPDR S&P 500 ETF (SPY) fell marginally by 0.68% and closed at $204.6 on the same day.

Profit booking 

WTI crude oil prices gained more than 40% in the past two months. Brent crude oil prices also rallied more than 45% since the lows in February 2016. Crude oil prices hit 2016 highs on March 22, 2016. To learn more, read Bull Market: Crude Oil Prices Trade at 2016 Highs and Are Crude Oil Traders the Bullish Catalyst for the Global Oil Market?

High oil prices led to profit booking, and oil prices fell on March 23, 2016. To learn more, read What’s the Key Bearish Catalyst for Crude Oil Prices in 2016? The recent crude oil bull market benefits upstream oil producers like Matador Resources (MTDR), SM Energy (SM), Sanchez Energy (SN), Energy XXI (EXXI), and Goodrich Petroleum (GDP).

US dollar index

The dollar index appreciated by 0.5% and was trading at 96.1 levels on March 23, 2016. The Fed’s confidence that it will raise interest rates twice in 2016 supported the US dollar rally. The appreciating US dollar makes US crude oil expensive for crude oil importing countries. The US dollar is inversely correlated with crude oil prices.

The volatility in crude oil and gas prices affects ETFs like the ProShares Ultra Oil & Gas (DIG), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), the VelocityShares 3x Inverse Crude Oil ETN (DWTI), and the Direxion Daily Energy Bull 3x Shares ETF (ERX).

The US crude oil inventory hit all-time highs. Read more about that in the next part of the series. The series also covers US crude oil production, and import and refinery demand. The last four parts of the series focus on gasoline and distillate prices and inventories.

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