Crude oil prices fell again
December WTI (West Texas Intermediate) crude oil futures fell for the third day by 2.0% and closed at $44.29 per barrel on Friday, November 6, 2015. Prices fell due to the appreciating US dollar and weak demand data from China. ETFs like the United States Oil ETF (USO) and the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) followed US crude oil prices in Friday’s trade. These ETFs fell by 1.7% and 2.7%, respectively, at the close of trade on November 6, 2015.
On November 6, 2015, the US Dollar Index appreciated by 1.2% to 99.3 against the basket of global currencies. The US Dollar Index rallied due to strong US employment data. On November 6, 2015, the U.S. Department of Labor reported that non-farm payrolls rose by 271,000 in October compared to the market expectation of 180,000 jobs. The US unemployment rate was at 5%—the lowest since April 2008. It boosted sentiments of a possible rate hike by the Federal Reserve in December 2015. As a result, it weighed on dollar-denominated crude oil. Crude oil prices fell for the third day and lost almost 5% for the week. The fall in prices impacts oil producing giants like Shell (RDS.A), Eni (ENI), BP (BP), and Petrobras (PBR)
On November 9, 2015, the initial survey from the General Administration of Customs of China reported that China imported less crude oil in October 2015. The imports fell by 8.8% to 6.2 MMbpd (million barrels per day) in October compared to September, according to data from Bloomberg. It’s the lowest since May 2015. The slowing Chinese economy led to the fall in demand. China is the second-largest consumer of crude oil in the world. The weak demand will negatively influence crude oil prices over the long term. The volatility in the crude oil market impacts ETFs like the iShares Global Energy ETF (IXC) and the PowerShares DWA Energy Momentum ETF (PXI).
On November 6, 2015, the U.S. CFTC (Commodity Futures Trading Commission) reported that hedge fund traders increased their long positions by 20% for the week ending November 3, 2015—compared to the previous week. It’s the highest level since June 2015. Meanwhile, the short positions fell during the same period. Hedge funds’ positions and wider contango suggest that oil prices will trade higher in the long term. “Contango” is defined as the positive difference between the future contracts price and expected futures spot prices of crude oil.
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.