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Crude Oil Futures: Will the Recovery Be Short-Lived?

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Crude Oil Futures: Will the Recovery Be Short-Lived? PART 1 OF 7

IEA’s Bullish Comments and the Fed Boost Crude Oil Prices

Crude oil prices 

April WTI (West Texas Intermediate) crude oil (USL) (SCO) (VDE) futures contracts rose 2.4% and settled at $48.86 per barrel on March 15, 2017. Broader markets (SPY) (SPX-INDEX) also rose 0.8% to 238.9 on March 15, 2017. Oil and gas are major parts of the energy sector. The energy sector contributed to ~6.5% of the S&P 500 as of March 10, 2017.

US crude oil prices rose due to the following factors:

  • short covering
  • surprise draw in US crude oil inventories from March 3–10, 2017
  • IEA’s (International Energy Agency) estimates that crude oil demand would exceed supply in 1H17
  • larger-than-expected fall in gasoline and distillate inventories
  • Fed raised the US interest rate by 0.25% to 0.75%–1% on March 15

The US dollar (UUP) fell 1% to 100.6 on the same day. The US dollar already priced in the rate hike. The fall in the dollar supported oil prices on March 15, 2017.

IEA’s Bullish Comments and the Fed Boost Crude Oil Prices

IEA’s Bullish Comments and the Fed Boost Crude Oil Prices

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However, crude oil (XLE) (IXC) (IEZ) futures are trading near a three-month low due to the rise in Saudi Arabia’s crude oil production. Meanwhile, the EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report on March 15, 2017. Prices rose due to the factors mentioned above. However, the recovery in crude oil prices would be short-lived due to the following data from the inventory report.

  • rise in Cushing crude oil inventories by 2.1 MMbbls (million barrels) from March 3–10, 2017
  • rise in weekly US crude oil production to a 13-month high from March 3–10, 2017

Crude oil volatility index

The Crude Oil Volatility Index fell 9.4% to 30.1 on March 15, 2017. It hit 24.7 on March 1, 2017—the lowest level since October 2014. High crude oil volatility in March 2017 suggests more downfall for crude oil prices. Volatility in crude oil prices can impact oil and gas producers’ earnings like Hess (HES), ExxonMobil (XOM), Warren Resources (WRES), and Goodrich Petroleum (GDP). 

In this series  

In this series, we’ll look at US crude oil production, refinery demand, imports, and inventories. We’ll also look at gasoline and distillate inventories.

We’ll start by looking at US crude oil prices in early morning trade on March 16, 2017.

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