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Crude Oil Prices Fall Due to Weak Demand Cues

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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.

NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for October delivery fell by 1.41% and closed at $44 per barrel on Monday, September 14, 2015. The speculation of slowing demand in the oversupplied market put pressure on crude oil prices. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) mirrored the US benchmark crude oil in yesterday’s trade. These ETFs fell by 1.77% and 3.72%, respectively, on September 9, 2015.

[marketrealist-chart id=654941]

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Chinese stock market fall 

The Chinese stock market fell for the second day in a row. It’s the highest fall in the last three weeks. The Chinese market fell by 41% from the peak level in June 2015. The Chinese market collapse is igniting pessimistic sentiments of a fall in crude oil demand. China is the second largest consumer and importer of crude oil. The Chinese currency devaluation, stock market collapse, weaker factory output data, and falling car sales all indicate a slowing economy. Whether the Chinese market collapse will be the epicenter of the global market turmoil is questionable. However, the BRICS (Brazil, Russia, India, China, and South Africa) nations and Japan could play a vital role in the crude oil market.

BRICS

“BRICS” refers to an association of five major emerging countries—Brazil, Russia, India, China, and South Africa. The cumulative consumption of crude oil from these countries is almost equivalent to or more than 20 MMbpd (million barrels per day). This is equal to 20% of the global crude oil consumption. The slowing economies in the BRICS nations could slow down the demand for crude oil. It means more pressure on the crude oil market because these economies would take more than the expected time to recover. It’s important to remember Japan. It’s also one of the largest consumers of oil. Japan’s economic slowdown will also add pressure to the oil market.

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Inventory data 

The API (American Petroleum Institute) will release the weekly crude oil stocks report on September 15, 2015. Last week, the US crude oil stockpile rose by 2.1 MMbbls (million barrels) for the week ending September 4, 2015. Market surveys project that US oil stocks could rise by 1.75 MMbbls for the week ending September 11, 2015. The record stockpile from the US to the Middle East will also add to the glut.

Seasonality 

Refinery maintenance and the peak summer driving season are nearing an end. The massive fall in gasoline prices will also put pressure on crude oil prices. Gasoline prices fell by 5.11 % in yesterday’s trade.

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Hedge funds’ bullish bets

The hedge funds increased their long positions to the highest level since April 2015, according to the latest report from CFTC (Commodity Futures Trading Commission). It’s supported by the fact that lower crude oil prices could slow down production and oil prices could recover.

Volatility picture 

Crude oil prices fell more than 16% YTD (year-to-date) due to oversupply concerns. US crude oil producers like Pioneer Natural Resources (PXD) and Cimarex Energy (XEC) increased the crude oil production in 2Q15 despite the roller coaster ride of crude oil prices. However, companies like Energen (EGN) decreased the crude oil production.

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