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Optimistic Fed Outlook, US Rigs Boosted Crude Oil Last Week

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Sep. 29 2015, Published 8:45 a.m. ET

Crude oil prices

WTI (West Texas Intermediate) crude oil prices increased 2.28% in the week ended September 25, compared to the previous week ended September 18. Brent crude rose 2.38% on a weekly basis.

When crude oil prices (USO) rise, it’s positive for oil producers such as Murphy Oil (MUR), Cimarex Energy (XEC), Hess (HES), and Diamondback Energy (FANG). Murphy Oil, Cimarex Energy, and Hess account for 2.60% of the Energy Select Sector SPDR ETF (XLE).

Higher crude oil prices are positive for MLPs as well. MLPs such as Plains All American Pipeline (PAA) transport crude oil. Higher prices could eventually translate to higher transported volumes for these MLPs. This means higher revenue.

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Weekly crude oil price recap

Between Friday, September 18, and Monday, September 21, WTI crude oil prices rose 4.47% to settle at $46.68 per barrel. Brent rose 3.05% to settle at $48.92 per barrel.

Prices rose after oilfield services company Baker Hughes (BHI) reported a decline in the number of oil rigs in the United States. This was the third straight decline.

The falling rig count indicates that producers are cutting back on drilling in response to lower oil prices. This in turn boosts expectations that a drop in US supply could help ease the crude oil glut.

On Tuesday, however, WTI prices fell 1.82% following negative speculation surrounding demand from China as well as weakness in US stocks. Later in the session, however, positive movement in gasoline and diesel prices limited losses.

WTI settled at $45.83 per barrel on Tuesday. Meanwhile, Brent prices rose slightly by 0.32%, closing at $49.08 per barrel on Tuesday.

Crude oil prices dropped on Wednesday after the EIA (U.S. Energy Information Administration) reported a surprise increase in gasoline inventories, ignoring the headline bullish crude inventory data. WTI fell 2.94% to settle at $44.48 per barrel, while Brent fell ~2.71% to close at $47.75 on Wednesday.

To learn more about last week’s crude inventory report, read US Crude Oil Inventories Fall Two Weeks in a Row—WTI Unimpressed.

Prices rose again on Thursday as the markets took in the EIA inventory report, which showed that both nationwide and Cushing inventories had declined in the week ended September 18. However, the gains were limited by weakness in US stocks.

On Friday, prices rose after Federal Reserve Chairwoman Janet Yellen hinted at a late 2015 rate hike, boosting optimism about global growth. Usually, a low interest rate regime is positive for commodities such as oil. Investors can store these at cheaper rates.

However the Fed’s decision last Thursday, September 17, to keep interest rates steady pointed to concerns about economic growth, which can limit demand for oil. Yellen’s recent remarks seemed to have quelled these fears about global growth.

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