Crude oil prices fell
February WTI (West Texas Intermediate) crude oil futures fell by 25 cents and were trading at $37.85 per barrel as of early Monday, December 28, 2015, in the electronic terminal. Brent crude oil also fell by 18 cents and was trading at $37.71 per barrel compared with the previous day’s close. Prices fell due to the ramping up of exports in 2016 by Iran. ETFs such as the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) usually follow crude oil price trends.
Iran is scaling up production and ramping up exports as the oil sanctions are removed. The National Iranian Oil Company reported that it would scale up production by 500,000 barrels per day within the week after the sanctions are lifted. This fueled the long-term oversupply concerns. As a result, prices tumbled after recovering from historic lows in the last week. US WTI is still trading close to 2009 lows and Brent is trading close to its 11-year low.
The record low oil prices benefit US refiners like Tesoro (TSO), Phillips 66 (PSX), and Valero Energy (VLO). However, they negatively affect crude oil producers like Hess (HES), Anadarko (APC), and BP (BP). Falling crude oil prices also impact energy ETFs like the PowerShares DB Oil Fund (DBO) and the Select Sector SPDR Fund ETF (XLE).
China stocks tumble
On December 27, 2015, the Chinese National Bureau of Statistics reported that Chinese industrial profits fell to $103.8 billion in November 2015 compared to last year. The Ministry of Finance reported that earnings of state-owned companies have fallen by 9.5% so far in 2015. As a result, Chinese stocks tumbled the most in the last three weeks. The fall in industrial profit cemented the slowdown of the Chinese economy in 2016. China is the second largest importer and consumer of crude oil. The slowing Chinese economy could negatively affect the demand for crude oil and affect oil prices.
Likewise, Japan’s industrial output fell by 1% in November 2015 compared with October 2015. This suggests that Japan, which is among the top Asian oil importers, could also drag oil prices due to its gloomy outlook for the economy in 2016.
The lifting of the 40-year-old crude oil export ban and the falling US crude oil inventory boosted crude oil prices last week. However, oil prices lost 35% YTD (year-to-date) due to oversupply concerns. For more information, read WTI and Brent Oil Spread Makes US Crude Oil Exports Unviable.
In this series, we’ll analyze the history of the crude oil market to understand whether history will repeat itself or not.