What’s Driving Crude Oil Prices Lower?
US crude oil
US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures contracts for October delivery closed at $46.35 per barrel on August 30, 2016. That’s 1.3% below its previous closing price and ~9.5% below its highest level in 2016 of $51.23 per barrel on June 8.
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The fall in crude oil prices coincides with rising supply glut concerns. On August 30, the API (American Petroleum Institute) reported a build of 942,000 barrels in crude oil inventories for the week ending August 26. The report also indicated a fall of 1.7 MMbbls (million barrels) in gasoline inventories. The U.S. Energy Information Administration will report its inventory data for the week ending August 26 on August 31, 2016. The uncertainty regarding the production freeze deal among major oil producers at next month’s meeting is also adding more downside to oil prices.
The US Dollar Index (UUP) rose 1.6% and closed at 96.05 on August 30, 2016. This could have contributed to the decline in crude oil. We’ll look at the relationship between the US Dollar Index and crude oil prices later in this series.
Key moving averages
Currently, crude oil futures are trading 1.7% below their 100-day moving average and 3% above their 20-day moving average. Prices breaking below their 100-day moving average indicate bearish sentiment for crude oil. The 20-day moving average might act as a downside support for crude oil going forward. The above graph shows the price performance of crude oil futures relative to key moving averages.
Crude oil sentiments impact ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), and the ProShares UltraShort Bloomberg Crude Oil (SCO).
In this series, we’ll analyze the impact of fundamental drivers such as the rig count, inventories, and the US Dollar Index on crude oil prices.
In the next part, we’ll see how rig counts are impacting oil prices.