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Crude Oil Prices Rose Due to Short Covering

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Crude oil prices rise 

NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for November delivery rose by 1.9% and closed at $47.26 per barrel on Friday, October 16, 2015. Prices rose due to short covering and the consensus of slowing US production. ETFs like the United States Oil ETF (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also moved in the direction of crude oil prices in Friday’s trade. They rose by 0.59% and 1.2%, respectively, at the close of trade on October 16, 2015.

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Short covering and US rigs 

Baker Hughes (BHI) reported that US crude oil rigs fell by 11 to 595 for the week ending October 16, 2015. US crude oil rigs fell for the seventh consecutive week. The falling US crude oil rigs fueled sentiments of slowing US production in Friday’s trade. As a result, crude oil prices rose on October 16, 2015. Prices also rose due to short covering as crude oil prices fell for four consecutive days. The rise in crude oil prices benefits oil producers like ExxonMobil (XOM), Hess (HES), Total (TOT), Occidental Petroleum (OXY), and BP (BP).

Rising crude oil prices also benefit 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 production and rig count release data.

China’s economic growth and factory output 

China is the world’s second largest crude oil consumer. China’s economy grew by 6.9% in 3Q15 compared to the previous year. Market surveys projected that China could grow by 6.8% during the same period. The Chinese government’s economic growth targets are 7% for the year. The better-than-expected growth is positive. However, China’s growth is still lower than the lows in 2009. To add to the concerns, China’s factory output rose by 5.7% in September—compared to the previous year. Market surveys estimated 6% growth during the same period. The slowing factory output and economy will continue to weigh on the crude oil market.

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Refinery maintenance

The refinery maintenance season in the US and China will lead to a fall in the average demand for crude oil in the near term. The Chinese National Bureau of Statistics reported that China refined 10.23 MMbpd (million barrels per day) of crude oil in September 2015. The inputs to the refineries fell by 1% in September—compared to August. It’s the lowest level since July 2015. The data were compiled by Bloomberg. It highlighted that the Chinese demand hit 10.16 MMbpd in September 2015. This is the lowest level since November 2014.

US CFTC 

The CFTC (U.S. Commodity Futures Trading Commission) published its weekly COT (Commitment for Traders) report on October 16, 2015. The data highlighted that crude oil hedge funds increased their bullish positions by 6.6% for the week ending October 13, 2015—compared to the previous week. It’s the highest level since June. The slowing rigs and project oil investments drove the hedge funds to increase their long bets. However, crude oil prices fell by 11.6% YTD (year-to-date) due to 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.

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