Crude oil prices rise for the third day
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.
November WTI (West Texas Intermediate) crude oil futures contracts trading in NYMEX rose by 4.9% and settled at $48.53 per barrel on Tuesday, October 6, 2015. Prices rose due to slowing US production and rising retail demand. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also rallied in the direction of US crude oil prices in Tuesday’s trade. These ETFs rose by 4.9% and 9.9%, respectively, on October 6, 2015.
The EIA released its STEO (Short-Term Energy Outlook) report on October 6, 2015. It reported that US production hit the lowest level in September 2015. The US crude oil production fell by 120,000 bpd (barrels per day) to 9 MMbpd (million barrels per day) in September—the lowest level since September 2014. The consensus of slowing US production resulted in optimism in the crude oil market. As a result, crude oil prices rallied for the third day.
Seasonal maintenance and retail demand
The speculation of slowing gasoline production due to refineries’ seasonal maintenance led to the mammoth rise in gasoline prices. Gasoline prices rose more than 7% in the last two days. In contrast, gasoline prices also rose due to the surge in retail demand. Retail demand rose due to motorists preferring less fuel efficient vehicles, like the SUV, due to long-term lower gasoline prices. Also, truck sales rose over the first nine months of 2015. The sales rose by 11% compared to 2014.
On October 6, 2015, the API (American Petroleum Institute) published its weekly crude oil stockpile report. The data showed that crude oil stocks fell by 1.2 MMbbls for the week ending October 2, 2015. The unexpected fall in crude oil stocks also boosted crude oil prices in yesterday’s trade.
Russia and OPEC meeting
The consensus of a possible meeting between Russia and OPEC (Organization of Petroleum Exporting Countries) is driving oil prices. There’s speculation that these countries might work towards a mutual agreement to stabilize oil prices by cutting production or taking appropriate measures to drive optimism in the crude oil market. Russia and Saudi Arabia produced more than 10 MMbpd of crude oil in September 2015.
Oil and gas exploration majors have reduced their investment in new projects by $130 billion in 2015—compared to $650 billion in 2014. The falling investment into the oil projects will curb crude oil’s future production. Global heavyweights like BP (BP), Chevron (CVX), ExxonMobil (XOM), Royal Dutch Shell, and Total (TOT) curbed their exploration and production budgets in 2015. Chevron and ExxonMobil account for 29% of the Energy Select Sector SPDR ETF (XLE). This could support oil prices over the long term. In contrast, prices fell more than 10% YTD (year-to-date) due to oversupply.