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Refined Products and the US Dollar Lowered Crude Oil Prices

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Nov. 20 2020, Updated 5:12 p.m. ET

Crude oil prices fall

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 fell by 1.28% and closed at $45.15 per barrel on August 5, 2015. US crude oil prices fell due to refined products’ inventory buildup and the strong dollar. The US benchmark following ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also fell in the direction of WTI crude oil prices. These ETFs fell by 1.25% and 2.59%, respectively, at the end of trading on August 5, 2015.

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Yesterday, the EIA (U.S. Energy Information Administration) released the weekly US commercial crude oil inventory data. The government data showed that the crude oil stockpile fell by 4.4 MMbbls (million barrels) for the week ending July 31, 2015. In contrast, gasoline and distillate inventories rose over the same period. The refined products’ buildup was putting downward pressure on the oversupplied crude oil market.

The US dollar index appreciated against the basket of currencies in yesterday’s trade. The US service sector index rose to the highest level in the last decade. This optimism supported the US dollar index. As a result, the US dollar added pressure to crude oil prices.

The consensus of the summer season’s fuel demand was also nearing an end. Also, speculation of slowing demand from China to the US added pressure to the crude oil market.

On the supply side, record production from the US to the Middle East will continue to put downward pressure on the crude oil market.

Crude oil prices fell more than 55% since the mid-week of June 2014. Crude oil prices were trading at $107 per barrel during this period. Over the same period, the cumulative market capitalization of 157 energy companies listed in the Bloomberg Intelligence North America Independent Explorers & Producers Index fell about $1.3 trillion, according to Bloomberg estimates.

Likewise, US crude has lost more than 22% since July 2015. During this period, hedge funds have reduced their long positions to the lowest levels in the last five years.

The mammoth fall in oil prices is even killing integrated players’ margins like ExxonMobil (XOM), Chevron (CVX), and Occidental Petroleum (OXY). Combined, they account for 32.22% of the Energy Select Sector SPDR ETF (XLE). ExxonMobil and Chevron posted their lowest profits in the last several years. These companies are working on a sustainability program by reducing spending and finding opportunities on lower priced drilling contracts.

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