Will the US Crude Oil Bull Market Be Short-Lived?

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Will the US Crude Oil Bull Market Be Short-Lived? PART 1 OF 6

US Crude Oil Futures and the S&P 500 Diverge

US crude oil futures 

US crude oil (UWT) (DWT) futures contracts for November delivery fell 0.7% and settled at $51.8 per barrel on September 26, 2017. Brent crude oil (BNO) futures contracts fell 1% to $58.44 per barrel on the same day.

Prices fell as the US dollar (UUP) appreciated nearly to a one-month high. Prices also fell due to profit taking because futures were trading at multi-month highs. Brent and US crude oil prices are at 26-month and five-month highs, respectively.

US Crude Oil Futures and the S&amp;P 500 Diverge

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US dollar

The US Dollar Index rose 0.4% to 92.78 on September 26, 2017—the highest level since August 31, 2017. The dollar rose due to the expectation of major US tax reforms. The rising expectation of a hike in US interest rates for the third time this year (in December 2017) also helped the dollar.

The S&P 500 and Dow

The S&P 500 (SPY) rose 0.1% to 2,496.84 on September 26, 2017, but the Dow Jones Industrial Average Index (DIA) fell 0.1% to 22,284.32 on the same day. Notably, these indexes hit the record levels of 2,508 and 22,410, respectively, on September 20, 2017.

US crude oil (SCO) (UCO) (DBO) prices have fallen ~8.5% YTD (year-to-date), while the S&P 500 has risen 11.5% YTD. US crude oil prices and the S&P 500 have diverged so far in 2017.

The IT (XLK), healthcare (XLV), and materials (XLB) sectors have risen more than 13% YTD. These sectors have been supporting the S&P 500 in 2017.

API’s crude oil inventories 

Meanwhile, the API (American Petroleum Institute) released its weekly crude oil inventory report on Tuesday, September 26, 2017, reporting that US crude oil inventories fell 0.76 MMbbls (million barrels) from September 15 to 22. The market expected that US crude oil inventories would rise 3.4 MMbbls during the period, but the surprise draw in inventories supported US crude oil prices in post-settlement trades on September 26.

EIA’s US crude oil inventories

On September 27, 2017, the EIA (US Energy Information Administration) will release its weekly crude oil and gasoline inventory report at 10:30 AM.

In this series, we’ll discuss US gasoline demand, the global crude oil supply and demand gap, India’s crude oil imports, and OPEC’s (Organization of the Petroleum Exporting Countries) spare production capacity.

We’ll start by assessing the API’s gasoline and distillate inventories data.


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