11 Aug

Crude Oil Prices Rally as the US Dollar Depreciates

WRITTEN BY Gordon Kristopher

Crude oil prices rally for the first time in the last four days

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

September WTI (West Texas Intermediate) crude oil futures contracts trading in NYMEX rose by 2.48% and closed at $44.96 per barrel on August 10, 2015. Oil prices rose due to rising refined product prices and the weak dollar. The US benchmark following ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also reflected the direction of crude oil prices in yesterday’s trade. These ETFs rose by 2.27% and 4.33%, respectively, on August 10, 2015.

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The US Dollar Index fell by 0.41%. It was trading at 97.51 levels yesterday. It fell against the basket of currencies due to profit-booking. The appreciating dollar negatively impacts crude oil. Crude oil is a dollar-denominated commodity. The appreciating dollar makes crude oil expensive for oil importing nations.

Record imports from China also boosted crude oil prices. The imports rose due to the demand from small refineries, according to sources from the General Administration of Customs. China imported 7.3 MMbpd (million barrels per day) of crude oil in July 2015.

Diesel and gasoline prices surged in yesterday’s trade on the consensus of a short demand spike due to BP’s (BP) refinery unit malfunction. As a result, speculation of refinery demand boosted crude oil prices. However, the EIA (U.S. Energy Information Administration) published that the gasoline and distillates stockpile rose by 0.811 MMbbls (million barrels) and 0.709 MMbbls for the week ending July 31, 2015.

The spike in oil prices could be short-lived. The crude oil market would be flooded by massive production from the US, Russia, Saudi Arabia, Iran, and Iraq in the already oversupplied market.

On the demand side, slowing demand due to the summer driving season nearing an end could put pressure on oil prices. The beginning of refineries’ maintenance season and speculation of slowing demand from China to the US would add pressure to crude oil prices.

This is the fifth up day for crude oil prices in the last ten days. Prices fell by more than 1% on the average down days than on the average up days over the same period. WTI crude oil was among the top performers across all of the other commodities in yesterday’s trade. Crude oil prices lost more than 16% YTD (year-to-date) due to oversupply concerns.

The roller coaster ride of crude oil prices affects energy producers like ExxonMobil (XOM), Anadarko Petroleum (APC), and ConocoPhillips (COP). Combined, they account for 21.49% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production mix is greater than 41% of their total production.

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