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Crude Oil’s Bumpy Ride: Do Fundamental Drivers Show a Reversal?

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Crude Oil’s Bumpy Ride: Do Fundamental Drivers Show a Reversal? PART 1 OF 4

What’s Impacting Crude Oil Prices?

US crude oil

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures contracts for October delivery closed at $48.1 per barrel on August 23, 2016. That’s 1.5% above its previous closing price. It’s also ~6.1% below its highest level in 2016 of $51.23 per barrel on June 8.

What&#8217;s Impacting Crude Oil Prices?

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The rise in crude oil prices coincides with news that Iran could join OPEC (Organization of the Petroleum Exporting Countries) members in September to discuss a potential production freeze deal.

However, on August 23, the API (American Petroleum Institute) reported a build of 4.46 MMbbls (million barrels) in crude oil inventories for the week ending on August 19. The report also indicated a fall of 2.17 MMbbls in gasoline inventories. The U.S. Energy Information Administration will report its inventory data for the week ending August 19 on August 24, 2016.

In the last few weeks, news from OPEC and non-OPEC members has been the key driver behind the upward move in oil prices. However, the fundamental drivers still indicate a bearish outlook for oil prices. We’ll discuss some of these drivers later in this series.

The US Dollar Index (UUP) fell 0.02% and closed at 94.54 on August 23, 2016. This also helped crude oil rise. We’ll look at the relationship between the US Dollar Index and crude oil prices later in this series.

Key moving averages

Now, crude oil futures are trading 2.6% above their 100-day moving average and 5.5% above their 20-day moving average. Prices breaking above their 20-day and 100-day moving averages indicate bullish momentum for crude oil. The two moving averages might act as downside support for crude oil going forward.

The above graph shows the price performance of crude oil futures relative to key moving averages.

Energy ETFs

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).

Series focus

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.

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