Is It the Beginning of a Bear Market for Crude Oil?
Crude oil prices and US stock exchanges
WTI (West Texas Intermediate) crude oil (RYE) (BNO) (IYE) futures for May delivery are near a four-month low as of March 20, 2017. So far, crude oil prices and broader markets such as the S&P 500 (SPY) (SPX-INDEX) are diverging in 2017. SPY is up ~6.2% YTD (year-to-date). However, crude oil prices are down 12.7% YTD. Meanwhile, US crude oil prices had risen ~8.3% in the last 12 months. SPY had risen ~16% during the same period. So, bullish momentum in the US stock market could partially support oil prices. For more on crude oil prices, read Part 1 of this series.
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Crude oil’s highs in the last 12 months
NYMEX WTI crude oil prices settled at $54.45 per barrel on February 23, 2017—the highest level since June 2015. As of March 17, 2017, crude oil prices were 9.4% below their high.
Key bullish drivers for crude oil in 2017
- possible extension of major oil producers’ production cut deal
- rise in US gasoline demand
- rise in India’s crude oil imports and demand
- rise in China’s crude oil imports and demand
Crude oil’s lows in the last 12 months
US crude oil settled at $26.21 per barrel on February 11, 2016. Crude oil prices hit a 13-year low due to the following factors:
- record US crude oil production in 2015
- record OPEC crude oil production
- record Russian oil production
- record global crude oil and high refined product inventories
As of March 17, 2017, crude oil prices have risen 88.1% from their 2016 lows. Higher crude oil (FXN) (IXC) (USL) prices have a positive impact on oil producers’ earnings such as Occidental Petroleum (OXY), Whiting Petroleum (WLL), Cobalt International Energy (CIE), and Continental Resources (CLR).
Key bearish drivers for crude oil in 2017
- rise in US crude oil rigs to an 18-month high
- near-record US crude oil inventories
- rise in US crude oil production to February 2016 high
- President Trump’s energy policy
- record OECD crude oil inventories
- a rise in Iran’s crude oil production and exports
Crude oil price forecasts
Crude oil prices could collapse due to the factors mentioned above. Crude oil prices are trading just above the 200-day moving averages. For more on moving averages, read Part 1 of this series. BTU Analytics thinks that if OPEC doesn’t extend major oil producers’ production cut deal, we could see oil prices breaking below $40 per barrel in the short term. Currently, crude oil prices fell ~10% in the past month. If they fall another 10%, they might enter a bear market.
In the next part of the series, we’ll look at how Cushing crude oil inventories impact crude oil prices.