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US Supply Surplus Pushes WTI into a Bear Market

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Jul. 30 2015, Published 9:17 a.m. ET

Crude oil prices

Between July 20 and July 27, WTI (West Texas Intermediate) crude oil prices closed 5.50% lower. They settled at $47.39 per barrel. Brent crude oil fell by 5.61% to close at $53.47 on July 27.

When prices fall, it’s negative for crude oil producers like ConocoPhillips (COP), Hess (HES), Anadarko Petroleum (APC), and Apache (APA). These companies receive lower prices for their products. Combined, these companies account for 9% of the iShares U.S. Energy ETF (IYE).

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Lower prices don’t bode well for MLPs like Plains All American Pipeline (PAA) either. Lower prices could translate into lower transported volumes for these MLPs. This means reduced revenue.

Weekly crude oil recap

From July 17 to July 20, WTI crude oil prices fell by 1.45% to settle at $50.15 per barrel. Brent fell by 0.78% and closed at $56.65 per barrel. Both benchmarks fell on concerns relating to global supplies outweighing demand.

However, prices recuperated slightly the next day. A weaker dollar and the expectation of a fall in US crude inventories in the EIA’s (Energy Information Administration) weekly report, to be released the following day, caused the uptick in prices. WTI rose 0.41% to settle at $50.36 per barrel. Brent rose 0.68% to settle at $57.04 on Tuesday.

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On Wednesday, WTI fell below $50 per barrel for the first time in over three months. Prices fell because of the unexpected rise in crude oil inventories in the EIA’s weekly crude oil inventory report. The report also showed that Cushing inventories rose for the fourth week in a row. WTI crude oil fell 2.32% to settle at $49.19 per barrel on Wednesday. Brent fell 1.59% to settle at $56.13 per barrel. To learn more about the July 17 weekly crude inventory report, read Crude Oil Stocks Were Up Last Week, Pressuring WTI.

On Thursday, WTI crude oil continued to fall. It fell ~21% from its 2015 high of $61.26 per barrel that it just saw last month. As a result, it fell into a bear market. A bear market is usually defined as a fall of 20%. Prices continued to be weighed down by rising supplies. WTI fell 1.50% to settle at $48.45 per barrel. Brent crude oil fell 1.53% to close at $55.27 per barrel on Thursday.

Prices continued to fall the next day as well. The benchmarks closed at $48.14 per barrel and $54.62 per barrel, respectively, on Friday. The daily fall for WTI was 0.63%. For Brent, the daily fall was 1.17%.

WTI and Brent crude oil prices extended their fall on Monday, July 27. Apart from surplus supplies in the US, concerns about weaker demand from China—the second largest consumer of crude oil—fueled the weakness. WTI fell ~1.55% to close at $47.39—the lowest in almost four months. Brent fell 2% to close at $53.47.

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