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Crude Oil Is Falling: What Energy Investors Should Know

PART:
1 2 3 4
Crude Oil Is Falling: What Energy Investors Should Know PART 1 OF 4

How OPEC, Dollar, and Supply Glut Are Affecting Oil Prices

US crude oil

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures contracts for December delivery closed at $49.96 per barrel on October 25, 2016. The contracts were 1.1% below the previous closing price.

How OPEC, Dollar, and Supply Glut Are Affecting Oil Prices

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Crude oil prices were at their lowest in the last five trading sessions after a Russian envoy was cited voicing the country’s unwillingness to make production cuts as OPEC members have. Russia is the largest producer of crude oil in the world. Russia’s oil production in September 2016 was at record levels of 11.1 million barrels a day according to Energy Intelligence’s monthly data.

Earlier, Iraq had already signaled that it wouldn’t participate in OPEC’s planned production cuts. Iraq is the second-largest oil producer among OPEC members. Iraq’s oil output stands at 4.8 million barrels per day. Increasing oil production in Nigeria and forecasts indicating a rise in US oil inventories also led to the fall in crude oil prices on October 25, 2016.

Between October 18 and October 25, 2016, US crude oil December futures fell 1.3%. The US dollar is also behind the weakness. We’ll discuss the impact of the US dollar on crude oil in part four of this series.

API inventories

On October 25, the American Petroleum Institute reported a rise of 4.8 MMbbls (million barrels) in crude oil inventories for the week ending October 21. The U.S. Energy Information Administration will report its inventory data for the week ending October 21 on October 26, 2016.

Key moving averages

Currently, crude oil futures are trading 3.6% above their 100-day moving average, but 0.6% below their 20-day moving average. Prices breaking below their 20-day moving average indicate short-term bearish sentiment for crude oil. The 100-day moving average 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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