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Looking Ahead: What to Expect from Crude Oil

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Looking Ahead: What to Expect from Crude Oil PART 1 OF 6

Is WTI Crude Oil Coming Back to $50?

US crude oil

US crude oil (USO) (OIIL) (USL) (DBO) futures contracts for June delivery closed at $52.85 per barrel on April 18, 2017—0.5% below the previous day’s closing price.

Is WTI Crude Oil Coming Back to $50?

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In the trailing week, US crude oil active futures fell 1.7%. During the same period, the Energy Select Sector SPDR ETF (XLE) fell 2.9%, while the S&P 500 Index (SPY) (IVV) (VNN) (SPX-INDEX) fell 0.5%.

The S&P 400 Midcap 400 Index (IVOO) (MID-INDEX) fell 1.1% during this period. The Dow Jones Industrial Average (DJIA-INDEX) (DIA) fell 0.6% between April 11 and April 18. The FTSE 100 Index (UKX-INDEX) (EWU) fell ~3%, while the CAC 40 Index (PX1-INDEX) (EWQ) fell 2.2% during this period. Crude oil is an important driver for global equities.

API inventories

On April 18, 2017, the API (American Petroleum Institute) reported a fall of ~0.84 MMbbls (million barrels) in crude oil inventories for the week ending April 14, 2017. It’s the third consecutive fall in API inventories. The EIA will provide inventory data for the week ending April 14, 2017, on April 19, 2017.

However, the API reported a rise of ~1.4 MMbbls in gasoline inventories. It could be a bearish catalyst for crude oil prices.

On April 19, 2017, at 12:51 PM EST, US crude oil June futures were trading at $52.70 per barrel—0.3% below the previous day’s settlement price. Prices fell due to bearish API inventory data, concerns about rising US crude oil production, and comments from Saudi Arabia hinting at doubts about the extension of OPEC’s production cut deal.

Since OPEC’s production cut deal in November 2016, US oil production has risen by ~0.54 MMbpd, about 45% of OPEC’s pledged production cuts, according to the EIA’s weekly production data.

In the last four and half months since OPEC’s production cut deal in November 2016, the US added 209 oil rigs. Rising oil rigs and rig efficiency could have a negative impact on crude oil prices. We’ll discuss oil rigs in detail in the next part.

On April 13, 2017, the IEA (International Energy Agency) cut its crude oil demand growth forecast for 2017 to 1.3 MMbpd (million barrels per day)—a reduction of 0.1 MMbpd from its previous forecast.

All of these bearish factors could drag oil prices below $50.

Key moving averages

Crude oil futures are now trading 1.1% below their 100-day moving average, but 3.4% above their 20-day moving average. On April 17, 2017, US WTI June futures moved below their 100-day moving average. Prices breaking below the 100-day moving average indicate bearish sentiment. The 20-day moving average near ~$51 could provide some support.

Energy ETFs and series focus

It’s important to remember that crude oil–related 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).

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