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How Do US Inventories and OPEC Impact Crude Oil Prices?

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How Do US Inventories and OPEC Impact Crude Oil Prices? PART 1 OF 4

US Inventories and OPEC Impact Crude Oil Prices

Crude oil prices  

February 2017 WTI (West Texas Intermediate) crude oil (PXI) (USL) (IXC) (ERY) (IYE) futures contracts fell 0.5% and settled at $53.8 per barrel on December 29, 2016. US crude oil prices hit the highest settlement in 18 months on December 28, 2016. Brent crude oil futures also fell 0.2% and closed at $56.9 per barrel on December 29, 2016.

Crude oil prices fell due to the unexpected rise in US crude oil inventories. However, crude oil prices are trading near 2016 highs due to major oil producers’ production cut, which would curb oversupply in the market. OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC producers agreed to cut crude oil production by 1.8 MMbpd (million barrels per day) from January 2017 onwards.

ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) follow crude oil futures contracts. These ETFs fell 0.3% and 0.3%, respectively, on December 29, 2016.

US Inventories and OPEC Impact Crude Oil Prices

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Major oil producers’ production cut 

Brent and WTI crude oil (BNO) (PXI) (XOP) (USL) (ERX) prices rose 17.2% and 16.2% between November 25 and December 29, 2016, due to major oil producers’ production cut plans. For more, read Analyzing Major Oil Producers’ Output Cut Plan in January 2017, Crude Oil Prices Skyrocket as OPEC Agrees to Cut ProductionHow Will OPEC’s Production Cut Impact Crude Oil Prices, and How OPEC and Non-OPEC Producers Affect Crude Oil Prices.

US Inventories and OPEC Impact Crude Oil Prices

US crude oil inventories   

The EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report on December 29, 2016. It reported that US crude oil inventories fell by 0.6 MMbbls from December 16–23, 2016. We’ll look at US crude oil inventories and their regional breakdown in Part 2 of this series.

Earlier, the API (American Petroleum Institute) estimated that US crude oil inventories rose by 4.2 MMbbls from December 16–23, 2016. The API added that Cushing crude oil inventories rose by 0.5 MMbbls. Read Cushing Crude Oil Inventories Could Pressure Crude Oil to learn more.

Volatility in crude oil prices can impact oil and gas producers’ earnings like ExxonMobil (XOM), ConocoPhillips (COP), Chevron (CVX), Northern Oil & Gas (NOG), Denbury Resources (DNR), and Comstock Resources (CRK).

Moves in crude oil and natural gas prices also impact funds such as the Fidelity MSCI Energy ETF (FENY), the Energy Select Sector SPDR ETF (XLE), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), and the United States Brent Oil ETF (BNO).

Series focus   

In this series, we’ll look at US crude oil production, refinery demand, imports, and inventories. We’ll start by looking at US crude oil prices in early morning trade on December 30, 2016.

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