Crude oil prices rally again
NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for December delivery rose by 3.8% and settled at $47.90 per barrel on November 3, 2015. Prices rose due to a supply disruption in Brazil and political tensions in Libya. The US benchmark following ETFs like the United States Oil ETF (USO) and the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) followed the price path of crude oil prices yesterday. These ETFs rose by 3.6% and 7.4%, respectively, on November 3, 2015.
Strike in Brazil
Petrobras (PBR) is the largest oil producing company in Brazil. The oil giant produces 2 MMbpd (million barrels per day) of crude oil. Brazil produced 2.6 MMbpd of crude oil in August 2015. The catastrophic fall in crude oil prices and the scandal at Petrobras pushed the oil company to slash spending and asset sales. The company also laid off employees. Petrobras’ debt was downgraded to “non-investment grade” in September 2015. To reduce debt, the oil major is trying all of the possible strategies. However, laying off employees resulted in a strike. The strike caused production to fall by 500,000 bpd (barrels per day) in Brazil’s daily output. The crude oil market reacted to the supply outage and rose in yesterday’s trade.
Libya’s political tensions
The political unrest in Libya is bringing more cheers for the oil market. Libya’s crude oil production capacity is at 1.5 MMbpd. However, political unrest led to the fall in production. The eastern export terminal of Zueitina port is under military control. So, we could see a fall in production by 70,000 bpd to 400,000 bpd, according to data from the Libyan National Oil Company. It would benefit crude oil prices in the oil glut market.
Refinery demand and Gasoline prices
Gasoline prices rallied by 5% to $1.45 per gallon on November 3, 2015. Prices rallied due to falling gasoline inventory and the closed refineries at the Cedar Bayou facility Texas due to flooding. The explosion at ExxonMobil’s (XOM) Torrence refinery is also leading to the rally in gasoline prices. It led to a 20% fall in gasoline production in southern California. The refinery is offline. It might start operations next year. The rise in gasoline prices and demand will lead to the rise in crude oil demand. It will benefit crude oil prices. The consensus of rising refinery demand for crude oil is also expected to boost crude oil prices.
Crude oil prices rose 10% in the last five trading sessions. The rise in oil prices benefits oil majors like Royal Dutch Shell (RDS.A), BP (BP), and ENI (ENI). In contrast, oil prices fell by 10.5% YTD (year-to-date) due to oversupply concerns. The uncertainty in the oil market impacts ETFs like the iShares Global Energy ETF (IXC) and the PowerShares DWA Energy Momentum ETF (PXI)
In this series, we’ll look at crude oil prices and fundamentals. For an in-depth fundamental look at oil and gas and related companies, sectors, and drivers, visit Market Realist’s Energy and Power page.