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Should OPEC Interfere to Stabilize the Crude Oil Market?

PART:
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Should OPEC Interfere to Stabilize the Crude Oil Market? PART 1 OF 8

Crude Oil Prices Fell by 17% in the Last 6 Trading Sessions

Crude oil prices fell again 

US benchmark WTI (West Texas Intermediate) crude oil futures contracts for February delivery fell by 3% and settled at $30.44 per barrel on Tuesday, January 12, 2016. Prices fell due to weak demand cues and rising supplies in the oversupplied market. ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) also fell in line with oil prices in yesterday’s trade. In contrast, broader indexes like the SPDR S&P 500 ETF (SPY) rallied in yesterday’s trade.

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Crude oil prices hit new lows 

Global benchmark Brent crude oil prices also fell in yesterday’s trade. They fell by 2.2% and closed at $30.86 per barrel. US crude oil prices even tested a fresh low of $29.93 per barrel. It’s the lowest level for WTI crude oil in the last 12 years. Brent oil prices also traded at the lowest levels in the last 12 years. Historic low oil prices will impact oil companies’ earnings in 4Q15. Companies like ExxonMobil (XOM), Chevron (CVX), and Occidental Petroleum (OXY) posted the lowest earnings in the last several years.

Oil’s current trend suggests that it may continue in 2016. However, oil refiners like Valero Energy (VLO), Tesoro (TSO), PBF Energy (PBF), Alon USA Partners (ALDW), CVR Refining (CVRR), and Northern Tier Energy (NTI) benefit from higher oil prices.

Chinese market

The Chinese stock market lost 20% since December 2015. The consensus of the slowing Chinese economy and depreciating Chinese yuan will put pressure on the oil market in 2016. To learn more about the Chinese fear factor, read How China Is Creating a Big Crack in the Global Crude Oil Market and China’s Crude Oil Imports: Teapot Refiners Will Be Key Catalysts. Uncertainty in the oil market is also impacting the performance of ETFs like the Energy Select Sector SPDR (XLE).

OPEC’s emergency meeting 

The turmoil in the oil market is creating panic. As a result, panic selling and pessimism are key contributors to the fall in crude oil prices. As a result, crude oil prices fell by 17% in the last six trading sessions. Historic low oil prices are creating conflicts among key OPEC (Organization of the Petroleum Exporting Countries) producers. We’ll discuss this in more detail in the fourth part of the series. In the next part of this series, we’ll see how inventory data could support crude oil prices.

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