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Bull Market: Crude oil prices and inventories move in same direction

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Bull Market: Crude oil prices and inventories move in same direction PART 1 OF 4

Crude Oil Market Priced in ahead of Inventory Data

Crude oil prices rally

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 October delivery rose by 1.85% and settled at $46.25 per barrel on Wednesday, September 2, 2015. Prices rallied despite surging inventory data. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) mirrored the price trajectory of US crude oil prices in yesterday’s trade. These ETFs rose by 1.89% and 3.37%, respectively, on September 2, 2015.

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EIA inventory report

On September 2, 2015, the EIA (U.S. Energy Information Administration) published its weekly crude oil inventory report. The government data showed crude oil inventory increased by 4.7 MMbbls (million barrels) for the week ending August 28, 2015. Likewise, the API (American Petroleum Institute) data showed crude oil stocks rose by 7.6 MMbbls over the same period. Crude oil market priced in ahead of the inventory report.

US dollar index

The US dollar index appreciated against the global currencies in yesterday’s trade. The dollar-denominated crude oil wasn’t dragged lower by the strong dollar. The technical catalyst and bullish momentum pushed crude oil prices higher.

Supply and demand

The record production from OPEC (Organization of Petroleum Exporting Countries), Russia, and the United States should continue to put pressure on crude oil prices. The rising global crude oil inventories across the United States, Middle East, and China will have a long-term negative impact on the crude oil market. The easing oil sanction on Iran should also add to the crude oil glut.

On the demand side, speculation of slowing demand from China, the United States, Europe, and Japan should fuel pessimist sentiment in the crude oil market. Summer driving season is nearing an end, and seasonal maintenance for refineries should also curb the demand for crude oil.

Volatility picture  

Crude oil prices fared well across other commodities in yesterday’s trade. It’s the fifth up-day for crude oil prices in the last ten days. Prices increased by 2.60% more on the average up-day than on the average down-day over the same period. Crude oil prices fell by 13.57% YTD (year-to-date) due to record supplies.

The roller coaster ride of crude oil prices affects oil producers like Hess (HES), Occidental Petroleum (OXY), and ExxonMobil (XOM). Combined, these companies account for 29.40% of the Energy Select Sector SPDR ETF (XLE). These companies have a crude oil production mix that’s more than 49% of their production portfolio.

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