Crude oil prices
WTI (West Texas Intermediate) crude oil futures contracts for July delivery fell 0.3% and settled at $49.33 per barrel on May 27. Brent crude oil futures also rose 0.54% to $49.32 per barrel. Prices fell for the second day due to profit-booking. ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) rose on the same day. They rose 0.25% and 0.46%, respectively, on May 27.
US dollar index
On May 27, Federal Reserve Chair Janet Yellen reported that a US interest rate hike is possible in the coming months if economic activity improves. She added that growth is expected to improve in the coming quarters. This improvement would, in turn, improve inflation figures. CME Group surveys show a 34% chance of a hike in June and a 62% chance in July 2016. The Fed’s policymaking committee meets on June 14 and 15.
As a result, the US dollar appreciated against major currencies on Friday, May 27. It rose 3.6% since May 2. On May 30, the US Dollar Index hit its highest level since March 2016. The US dollar inversely relates to crude oil. The appreciating US dollar makes crude oil expensive for oil-importing countries. So crude oil prices could be under pressure. The PowerShares DB US Dollar Bullish ETF (UUP) tracks the performance of the US Dollar Index. In the above graph, you can see the relationship between the US dollar and crude oil.
Brent and WTI crude oil prices highest levels
Brent crude oil prices rose to $50.51 on May 26—their highest level since early November 2015. Similarly, US crude oil tested $50.21 on May 26—its highest level since October 2015. As a result, traders booked profits. Read Is the Supply Side of the Crude Oil Market Rebalancing? and Demand Side of the Crude Oil Market: India Is a Bright Spot for more on supply and demand drivers and their effect on crude oil prices. High crude oil prices affect oil producers like Bill Barrett (BBG), Energy XXI (EXXI), Cobalt International Energy (CIE), and Denbury Resources (DNR).
Crude oil prices above $50 per barrel could see some shale oil producers resume their production. Read What Are the Key Bearish Drivers for Crude Oil Prices in 2016? to learn more about bearish drivers. The tussle for market share between Saudi Arabia and Iran could see more oil flooding the market. Restarting crude oil production in Canada, which was devastated by wildfire, will also pressure oil prices. The volatility in oil prices affects ETFs and ETNs such as the iShares US Oil Equipment & Services (IEZ) and the ProShares UltraShort Bloomberg Crude Oil (SCO).
This series focuses on Cushing crude oil inventories, the US crude oil rig count, the U.S. Commodity Futures Trading Commission’s “Commitments of Traders” report, and the crude oil price forecast.
Let’s start with Cushing crude oil inventories and their impact on crude oil prices in the next part of this series.