Crude Oil Prices Rally in the Depressed Crude Oil Market
Crude oil prices rise
This series analyzes crude oil prices and fundamentals. For an in-depth fundamental look at oil and gas and related companies, sectors, and drivers, please refer to our Energy and Power page.
NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for September delivery rose by 1.26% and settled at $45.74 per barrel on Tuesday, August 4, 2015. The consensus of falling US crude oil inventories and a rally from the Chinese stock market boosted crude oil prices. WTI tracking ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also mirrored US crude oil prices. These ETFs rose by 0.79% and 1.71%, respectively, on August 4, 2015.
Yesterday, the API (American Petroleum Institute) reported that the US commercial crude oil inventories fell by 2.4 MMbbls (million barrels) for the week ending July 31, 2015. The consensus of falling US inventories supports crude oil prices.
Meanwhile, the Chinese stock markets rallied in yesterday’s trade. The market rally was led by short covering due to regulations set by the Chinese government on short selling. The initiative was taken by the government in order to stabilize the market. China is the second largest consumer of crude oil. The consensus of an economic slowdown is fueling pessimism in the crude oil market. The slowing economy may curb the demand for crude oil.
The consensus of massive production from the US to the Middle East will continue to put downward pressure on the crude oil market. Likewise, speculation of slowing demand from China to the US will also add pressure to the crude oil market.
The appreciating US dollar against the basket of global currencies might also put pressure on crude oil prices. The strong US dollar makes dollar-denominated crude oil expensive to oil buyers. As a result, oil prices decline.
Oil prices have lost more than 20% since July 2015. Hedge funds have reduced their long positions to the lowest levels in the last five years on the consensus of the extending crude oil bear market. The long-term lower crude oil prices impact oil producers like Apache (APA), Chevron (CVX), and Occidental Petroleum (OXY). They account for 18.09% of the Energy Select Sector SPDR ETF (XLE).
This is the fifth up day for WTI crude oil prices in the last ten days. Over the same period, prices fell by 2.75% more on the average down days than on the average up days. September crude oil futures fared well against other commodities in Tuesday’s trade. Prices fell more than 13% YTD (year-to-date)—led by oversupply factors.
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