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Consensus of Supply Disruptions Boosts Crude Oil Prices

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Crude oil prices rise for the second day

This series provides an analysis of crude oil prices and fundamentals. For an in-depth fundamental look at crude oil and related companies, sectors, and drivers, please refer to our Energy and Power page.

NYMEX-traded July WTI (West Texas Intermediate) crude oil futures rose by 2.95% and settled at $60.72 per barrel on May 21, 2015. Oil prices surged due the consensus of supply disruption and inventory draw-downs. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) followed the price path of WTI crude oil’s price movement in Friday’s trade. They also rose by 1.07% and 1.86%, respectively, on May 21.

The fighting in Iraq raised concerns about crude oil transportation from the Middle East. The consensus of a sudden decrease in supply means that the gap between supply and demand will decrease. This supports an increase in crude oil prices.

In the meantime, trade analysts estimated a massive decline in crude oil inventories at Cushing, Oklahoma—the futures delivery point for crude oil. They estimated a decline of 740,000 barrels of crude oil between Friday—May 15, 2015—and Tuesday—May 19, 2015.

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On May 20, 2015, the EIA (U.S. Energy Information Administration) reported that the stockpile at Cushing dropped by 241,000 barrels to 60.44 MMbbls (million barrels)—against the industry consensus of 217,000 barrels for the week ending May 15. The worse-than-expected inventory draw-down supported oil prices. The recent estimates of massive inventory draw-downs are also igniting the oil prices and easing oil glut. The government data also showed that the weekly crude oil stockpile dropped by 2.67 MMbbls for the week ending May 15.

WTI oil increased for the fifth time in the last ten days. Over the same period, prices increased by 0.30% more on the average down days than on the average up days. WTI crude oil futures ruled the charts in yesterday’s trade. Nickel was the worst performer across all of the commodities in yesterday’s trade. Prices increased by 13.51% YTD (year-to-date)—led by the slowing US output and declining US inventories.

The roller coaster ride of WTI crude oil prices affects energy stocks like Occidental Petroleum (OXY), ExxonMobil (XOM), and Chevron (CVX). Combined, these stocks account for 32.34% of the Energy Select Sector SPDR Fund (XLE). These companies have an oil production mix that’s more than 50% of their total production.

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