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Why WTI oil prices bounced back to $103 per barrel last week

Ingrid Pan, CFA

Energy commodities like oil and natural gas had a bullish week (Part 1 of 4)

WTI crude oil prices traded back over $103 per barrel last week

On Friday, April 11, the price of the WTI crude front month contract closed at $103.74 per barrel, 2.5% higher than the $101.14 per barrel close the week prior. This was the first time WTI oil prices traded back to above $103 per barrel since February 19. The rise in prices was partly because the market remains concerned about crude supply in the near future, as geopolitical tensions in Libya might continue to threaten oil exports from the country. The continued conflict between Russia and Ukraine also provides some support to oil prices, as Russia is a major oil exporter and the market may be pricing in the risk of some sanctions against Russia’s oil sector. Plus, during the week, the U.S. Energy Information Administration reported a large decrease in gasoline inventories, which signals potentially larger demand for crude to replace gasoline stocks.

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.

Continue to Part 2

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