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Why Doubts Linger about Sustainability of Crude Oil Bull Market

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Why Doubts Linger about Sustainability of Crude Oil Bull Market PART 1 OF 6

Is the Recent Crude Oil Futures Rally Sustainable?

US and Brent crude oil futures  

US crude oil (UWT) (DBO) futures contracts for December delivery fell 0.7% to $56.81 per barrel on November 8, 2017. Brent oil (BNO) (OIL) futures fell 0.3% to $63.49 per barrel on the same day. Prices fell for the second day due to a rise in US crude oil production and inventories last week. The EIA (or US Energy Information Administration) published the data yesterday. The easing tensions in Saudi Arabia also weighed on oil (USL) (SCO) (BNO) prices.

However, crude oil prices are near a 30-month high due to ongoing production cuts, the fall in global crude oil inventories, improving global crude oil demand, and supply outages.

Is the Recent Crude Oil Futures Rally Sustainable?

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China’s crude oil imports hit one-year low 

On Wednesday, November 8, 2017, the General Administration of Customs of China reported that the country’s crude oil imports fell by 1,700,000 bpd (barrels per day) or 19% to 7,300,000 bpd in October 2017 compared with the previous month. Imports are at the lowest level since October 2016. The massive fall in Chinese crude oil imports also pressured crude oil (DBO) (SCO) prices on November 8, 2017. Lower oil prices negatively impact energy oil producers (XOP) (IYE) like Shell (RDS.A), Rosneft, BP (BP), Total SA (TOT), and Petro China (PTR).

What’s driving Wall Street?  

The Dow Jones Industrial Average (DIA) rose 0.03% to hit 23,563.36 on November 8, 2017. The NASDAQ (QQQ) rose 0.32% to record 6,789.12 on the same day. The S&P 500 (SPY) rose 0.14% to record 2,594.38 on November 8, 2017. The consumer staples (XLP) (VDC), real estate (VNQ) (IYR), and IT (XLK) (VGT) sectors supported the SPY on November 8, 2017.

The S&P 500 is up 21% since the election of President Trump last year. He promised tax reforms and fiscal stimulus during his campaign. Meanwhile, Wall Street has been driven by hopes of tax cuts, the improving US economy, and strong 3Q17 earnings results.

EIA’s crude oil inventory report

The EIA published its Weekly Petroleum Status Report on November 8, 2017. This series will cover US crude oil inventories, refinery demand, production, and gasoline and distillate inventories.

Next, we’ll analyze the possible outcome of the OPEC meeting.

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