Crude oil prices fall
November WTI (West Texas Intermediate) crude oil futures contracts fell by 2.6% and settled at $45.89 per barrel on October 19, 2015. Prices fell due to the mammoth rise in the gasoline glut and weak demand cues. The US benchmark following ETFs like the United States Oil ETF (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) mirrored the price trajectory of crude oil prices in Friday’s trade. They fell by 2.6% and 5.2%, respectively, on October 19, 2015.
Gasoline prices fell by 6% and settled at $1.25 per gallon on October 19, 2015. The refined form of crude oil is called “gasoline” in the US. The prices fell almost 10% in October 2015 and hit six-year lows due to mounting gasoline supplies. The EIA (U.S. Energy Information Administration) reported that US gasoline inventories hit 221 MMbbls (million barrels) in the week ending October 9, 2015—the highest at this time of year since 1990.
Even China has massive gasoline stocks. The rise in gasoline supplies will lead to the fall in the refinery demand for crude oil. It will negatively impact crude oil prices. Oil companies like Halliburton (HAL) and Chesapeake Energy (CHK) have been laying off more than 2,000 and 740 employees due to more pain in the oil market. Likewise, oil majors like Total (TOT) and Conoco Phillips (COP) are selling assets in order to service their debt in the depressed energy market.
The depressed oil market also impacts ETFs like the iShares US Oil & Gas Exploration & Production ETF (IEO) and the Vanguard Energy ETF (VDE). Read the next part of this series to learn more about the US crude oil inventory release data.
Iran’s nuclear impact
The recent development in Iran’s nuclear accord suggests that oil markets could be flooded by 500,000 bpd (barrels per day) of crude oil as soon as the oil sanctions are lifted. However, some industry experts suggest that it would take at least six months for Iran to materialize those numbers. The slowing US production could be balanced. It would add to the crude oil glut. It would put pressure on the oil market.
The ongoing refinery maintenance season in the US and China will curb the normal demand for crude oil. To add to the concerns, one of the largest refineries on the US East Coast, with a capacity of 275,000 bpd, will be shut due to a transformer malfunction. This will add to the glut. It will put downward pressure on the crude oil market. The refinery is owned by Phillips 66 (PSX).
Crude oil prices fell for the fifth time in the last ten days. Prices rose by 0.81% more on the average up days than on the average down days. WTI crude oil was the worst performer in yesterday’s trade—compared to other commodities. Similarly, US crude oil prices also fell more than 13% YTD (year-to-date) due to long-term oversupply concerns.
In this series, we’ll look at crude oil prices and fundamentals. For an in-depth fundamental look at oil, gas, and related companies, sectors, and drivers, visit Market Realist’s Energy and Power page.