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Crude Oil Rally Short-Lived: Fundamentals Still Feeding the Bears

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Crude Oil Rally Short-Lived: Fundamentals Still Feeding the Bears PART 1 OF 7

WTI and Brent Crude Oil Prices Diverge

Crude oil price movement 

NYMEX-traded February WTI (West Texas Intermediate) crude oil futures rose slightly by 0.13% and closed at $30.48 per barrel yesterday. In contrast, Brent crude oil prices fell by 1.8% and settled at $30.31 per barrel. US oil prices rose despite the surge in US crude oil inventory. Brent oil prices fell due to the turmoil in China and the unrest in the Middle East. The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) moved in the direction of US oil prices in yesterday’s trade. They fell by 0.87% and 1.8%, respectively. Broader indexes like the SPDR S&P 500 ETF (SPY) also fell in yesterday’s trade.

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WTI crude oil trades at a premium to Brent crude oil

WTI crude oil traded at a premium compared to Brent crude oil in yesterday’s trade. The WTI-Brent spread was at $0.17. US crude oil prices could trade at a premium in 2016 due to the lifting of the US crude oil export ban. However, long-term oversupply concerns and weak demand cues will continue to weigh on the crude oil market.

Oil benchmarks are trading close to 12-year lows. The historically low oil prices affect upstream players like ExxonMobil (XOM), Marathon Oil Corporation (MRO), Murphy Oil Corporation (MUR), and EOG Resources (EOG).

China’s crude oil imports 

Crude oil imports from China continue to rise despite the collateral damage in the Chinese market. China imported 6.7 MMbpd (million barrels per day) of crude oil in 2015. This was 5.5% more than 2014 levels, per data from China’s General Administration of Customs. Imports are expected to rise in 2016. For more on China’s imports, the only bright spot in the global oil market, read China’s Crude Oil Imports: Teapot Refiners Will Be Key Catalysts.

Volatility analysis 

Crude oil prices have fallen 70% since June 2014 due to long-term oversupply concerns. In 2016, crude oil prices may fall almost 20% due to the same factors. US crude oil prices rose for the first time in 2016 in yesterday’s trade. However, bearish traders have other reasons to celebrate. In the next part of this series, we’ll look at the US weekly crude oil inventory report.

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