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Why West Texas Intermediate crude oil prices continue to fall

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Oil price movements last week

After two consecutive weeks of bearish inventory reports, crude prices stabilized at levels close to $81 per barrel.

Last week, crude prices fell to the lowest levels since 2012.

WTI prices

The week started off on a grim note. Goldman Sachs is a U.S. investment bank. On Sunday, it released a report forecasting lower West Texas Intermediate (or WTI) and Brent prices than previously expected. It cited booming U.S. supplies as a reason for the decrease.

The company also predicted that the Organization of Petroleum Exporting Countries (or OPEC) will lose influence over the oil market—in the light of the U.S. shale boom.

According to the report, WTI will average $75 in the first quarter. This is one of the most bearish forecasts for WTI. The earlier forecast for WTI prices was $90.

Prices briefly fell below $80. These were the lowest prices since 2012. On Monday, they recovered slightly to close at $81 per barrel.

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Oil prices rebounded slightly on Tuesday. A report on the Consumer Confidence Index (or CCI)—released by the Conference Board—increased to 94.5 from 89 in September. This indicates rising confidence among U.S. consumers, in the light of falling gasoline prices. Falling gasoline prices are linked to falling crude prices.

WTI prices increased $0.42. They settled at $81.42 on Tuesday.

Prices continued to increase on Wednesday, after the U.S. Energy Information Administration (or EIA) report showed a less-than-expected inventory increase (Part 2). The report also showed a significant drop in gasoline and distillate inventories. Prices closed at $82.2 on Wednesday.

However, just as prices were thought to be stabilizing at $82 per barrel, prices quickly fell to $81.12 on Thursday. The prices fell due indications that OPEC boosted its oil output by 53,000 barrels a day. It boosted it to 30.974 million—the highest in 14 months.

In the light of surging U.S. oil production, this is another disappointment for U.S. oil producers.

Also, the Federal Reserve ended its asset-purchase program. This pushed the dollar higher. It curbed the appeal of dollar-based commodities—like oil.

Key stocks and exchange-traded funds (or ETFs)

Lower oil prices are negative for oil producers like Whiting Petroleum (WLL), Murphy Oil (MUR), and Hess Corp. (HES). Most of these companies are part of important ETFs like the Energy Select Sector SPDR ETF (XLE) and the iShares U.S. Energy ETF (IYE).

In the next part of the series, we’ll discuss the movement in Brent prices last week.

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