Crude oil prices rally
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 rose by 4% and closed at $45.92 per barrel on Thursday, September 10, 2015. Prices rose due the less-than-expected gasoline inventory rise and the depreciating US Dollar Index. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) mirrored the price trajectory of US crude oil prices in yesterday’s trade. These ETFs rose by 2.89% and 5.28%, respectively, on September 9, 2015.
EIA’s inventory report
The EIA (U.S. Energy Information Administration) released it weekly petroleum status report on September 10, 2015. The government data showed that the US commercial crude oil inventory rose by 2.6 MMbbls (million barrels) for the week ending September 4, 2015. The consensus of rising inventories was already priced in the crude oil market.
US Dollar Index
The US Dollar Index depreciated against the basket of global currencies in Thursday’s trade. The index fell by 0.60% due to mounting uncertainty about whether or not the Fed will hike the interest rate next week. The weaker dollar supported the dollar-denominated crude oil. The depreciating dollar makes crude oil affordable for oil importing nations in their domestic currency.
Saudi Arabia maintains its share in the Asian market
The fight for market share, despite lower crude oil prices, has led to victory for Saudi Arabia. The latest data from the EIA reported that Saudi Arabia exported 4.4 MMbpd (million barrels per day) of crude oil to Asia in 1H15. Crude oil exports to South Korea and Taiwan rose slightly compared to the previous year. Saudi Arabia maintained its crude oil exports to the Asians majors, compared to the previous year, despite falling crude oil prices. These export figures are almost equivalent to half of Saudi Arabia’s total exports. As a result, Saudi Arabia may continue with its strategy to produce more crude oil.
In August 2015, the car sales in China fell by 3%—compared to the previous month. It’s the fifth consecutive monthly fall and the slowest car sales growth in the past 25 years. Likewise, China’s PMI (purchasing manager index) fell by 6% in August 2015. It’s the largest fall since the 2009. Weak demand cues from China will continue to put pressure on crude oil prices.
Impact on oil producers
The long-term lower crude oil prices are impacting the crude oil production and exploration companies the most—compared to crude oil refiners. Some of the US oil producers like Apache (APA), Murphy Oil (MUR), and Marathon Oil (MRO) have fallen more than 50% in the past year. Over the same period, US crude oil prices fell more than 50%. These companies account for 3.73% of the Energy Select Sector SPDR ETF (XLE). In contrast, oil refining companies like Tesoro (TSO) gained more than 50% in the past year. Lower crude oil prices benefit refiners because crude oil is the main part of the input cost.