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Market Realist Energy Weekly: May 8–12, 2017

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Market Realist Energy Weekly: May 8–12, 2017 PART 1 OF 7

Energy Overview: Week of May 8–12, 2017

Energy Overview: Week of May 8–12, 2017

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Oil prices rebound

After hitting 2017’s low of $45.52 on May 4, 2017, US crude oil (USO) prices rose 3.5% in the week ended May 12, 2017. The rise was the first weekly gain after three consecutive weeks of losses for crude oil, and US crude oil’s highest weekly gain since the week ended April 7, 2017.

On May 10, 2017, the EIA (U.S. Energy Information Administration) reported a fall of 5.2 MMbbls (million barrels) in crude oil inventories and a decline of 0.2 MMbbls in motor gasoline inventories. These falls caused a 3.2% gain in US crude oil prices that day. On May 9, the API (American Petroleum Institute) reported a large draw on US oil inventories. OPEC (Organization of the Petroleum Exporting Countries) production coming in below agreed levels also supported crude oil prices during the week.

OPEC’s production cut deal could be a bullish factor for crude oil prices. News of Russia and Saudi Arabia extending their production cuts until March 2018 could push oil prices higher.

However, the oil rig count rose by nine, reaching 712, in the week ended May 12, 2017—the highest rig count seen since April 24, 2015. A higher rig count, the EIA’s forecast downgrade for oil prices, and Libya’s oil production could be concerns for oil bulls.

On May 12, US June futures closed at $47.84 a barrel, and Brent June futures closed at $50.84 a barrel, for a ~3.5% gain during the week. On May 12, 2017, the Brent-WTI (West Texas Intermediate) crude oil spread stood at $3.

Energy Overview: Week of May 8–12, 2017

Natural gas reaches 2017 high

It was an active week for US natural gas (UNG) as June NYMEX (New York Mercantile Exchange) futures traded at $3.14–$3.43. Natural gas June futures rose 4.8% between May 5 and 12, and closed at $3.42 per million British thermal units on May 12. Earlier in the week, bullishness due to cooler temperature forecasts and inventory data boosted natural gas prices. Lower US natural gas production was also a bullish factor.

The natural gas rig count stood at 172 in the week ended May 12, 2017—a fall of one rig from the previous week. A higher US oil rig count and the EIA’s forecast for lower natural gas consumption in 2017 could impact natural gas prices.

Energy Overview: Week of May 8–12, 2017

Broad market performance

Between May 5 and May 12, 2017, the Energy Select Sector SPDR ETF (XLE) and SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 0.7% and 1.3%, respectively, while the broad-market S&P 500 (SPY) (SPX-INDEX) fell 0.3%. During the same period, the Dow Jones Industrial Average (DIA) (DJIA-INDEX) fell 0.4%. Energy accounts for ~6.6% of the S&P 500 and ~6.4% of the Dow Jones. Crude oil is an important driver for energy ETFs and broader-market indexes.

Energy subsectors

Between May 5 and May 12, 2017, energy subsectors were mixed. The integrated and energy-heavy Energy Select Sector SPDR ETF (XLE) rose 0.7%. The Alerian MLP ETF (AMLP), which tracks midstream MLPs, rose 0.1%. The upstream and refining–based SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 1.3%. However, the VanEck Vectors Oil Services ETF (OIH), which tracks an index of oilfield equipment and service companies, fell 2.5% in the same week. In the next section, we’ll discuss last week’s best and worst performers in energy.

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