Crude oil price volatility
Crude oil prices continued their downtrend and fell to $43.81 per barrel on January 29, 2015. On January 28, the EIA reported its weekly crude oil inventory data. US crude oil inventories increased by 8.9 million barrels from the previous week. The oil inventory is at 406.7 million barrels for the week ending January 23, 2015. This is the highest inventory for this time of the year in the last 80 years.
Inventory data news pushed oil prices down and crude oil was trading at $44.31 per barrel, down ~4.15% on January 28. Then, crude oil started rebounding, hitting the support level at $43.6 levels on the later half of the day’s trade on January 29.
Massive oil supply
The massive supply of oil and inventory data could push oil prices even lower. The key support level is at $43 per barrel. Lower oil prices will directly affect the performance of oil ETFs like the United States Oil Fund (USO), the PowerShares DB Oil ETF (DBO), and the VanEck Vectors Unconventional Oil & Gas ETF (FRAK) as well as oil-producing companies like ExxonMobil (XOM) and ConocoPhillips (COP).
The drop in oil prices doesn’t seem to have led to the decline in production from the US, Russia, and OPEC[1. the Organization of the Petroleum Exporting Countries]. US crude oil production in December 2014 averaged around 9.2 million barrels per day. The EIA projects US production at 9.3 million and 9.5 million barrels in 2015 and 2016, respectively. Russia’s oil production was at 10.6 million barrels per day in December 2014. OPEC’s December 2014 output was ~30.2 million barrels per day. This huge production creates a massive supply of oil in the market.
Russia, the US, and OPEC meet about ~53% of world crude oil demand. The Q4 2014 world oil supply was 94.1 million barrels per day, whereas the demand was 93 million barrels per day. The surplus should have more of a downward impact on oil prices.
The US dollar index increased today against a basket of currencies. This also added to the decline in oil prices. The US dollar index was trading at 94.76 on January 29, 2014.
Bullish news, like production cuts, could push oil to resistance levels of $46 and $48 per barrel. The relative strength index (or RSI) has been in oversold territory for a long time, and it shows no signs of a rebound. The moving average convergence divergence (or MACD) is below the zero line, which supports negative crude oil price movement in the short term. MACD above the zero line projects upward price movement, while below the zero line projects downward price movement.
In the next part of this series, we’ll provide a technical analysis update for the SPY ETF.