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Why the WTI crude prices increased marginally on the week

Avik Chowdhury

Why the oil price traded up while the natural gas price remained unchanged (Part 2 of 4)

(Continued from Part 1)

WTI crude oil prices traded up 2% on the week

On May 23, the price of the WTI crude front month contract closed at $104.35 per barrel—up 2.3% from the $102.02 per barrel close the week prior. WTI crude oil price gained on bullish crude inventory figures. To learn more, please see our article on “How oil inventory figures can show supply and demand trends.” During the week, a report from the U.S. Energy Information Administration showed that U.S. imports of crude oil from Africa fell by more than 90 % between 2010 and early 2014. Positive data on the U.S. economy and continued tensions in Ukraine also buoyed oil prices.

WTI crude prices have remained relatively high and stable over the past year

For most of the last two years, 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. Upstream names which produce oil and gas see higher revenues, cash flows, and returns from higher oil prices. As a result, this causes upstream companies to invest more money in drilling more oil wells, which benefits oilfield service companies.

The previous graph shows WTI crude oil price movements compared to a few major energy ETFs as well as ExxonMobil (XOM). The ETFs displayed are the Energy Select Sector SPDR (XLE), the Market Vectors Oil Services ETF (OIH), and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). The XLE OIH is a cap-weighted ETF with holdings in upstream energy (including both independents and integrateds), downstream energy, and oilfield services with a large weighting towards megacaps such as ExxonMobil (XOM) and Schlumberger (SLB). The OIH ETF is a cap-weighted ETF focused on oilfield services. The XOP is an equal-weighted ETF focused on upstream energy companies.

Oil prices moving up last week is a positive indicator for many major energy companies such as XOM and SLB and energy ETFs such as XLE, XOP, and OIH.

Continue reading the next part of this series to learn about important changes in natural gas prices.

Continue to Part 3

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