Energy sector—the exception to the rally
As we saw in the graph in Part 1 of this series, the United States Oil Fund (USO) dropped by 2.4% on December 4 due to the plunge in oil prices on that day. Meanwhile, in US crude oil, the West Texas Intermediate fell by 2.7%, settling at $39.97 per barrel on December 4, while Brent crude settled at $43.0 per barrel. The plunge in oil prices left the energy sector at a yield of -0.6% on the day—the only sector to move in a direction against the broad market rally.
The graph below illustrates the stock price movement of the Energy Select Sector SPDR ETF (XLE), the United States Oil Fund (USO), the SPDR S&P 500 ETF (SPY), compared to the movement of the PowerShares DB US Dollar Bullish ETF (UUP) since August 2015. The rising US dollar has had a notable impact on the prices of crude.
OPEC quota meeting and rig count
OPEC (Organization of the Petroleum Exporting Countries) had its meeting on oil production quotas on December 4, which ended with no production cut. The organization’s member countries concluded that they would continue their current level of oil production and watch as demand and supply dynamics influence oil prices.
As a result, the supply glut in crude oil continued with a further fall in oil prices on December 4. As reported by the Baker-Hughes Rig Count report, the US rig count went down by 7, totalling 737 on December 4. But this fall in rig count could not impact oil prices dramatically—the strengthening US dollar made the fuel commodity more expensive.
Weather and demand
On the other hand, demand for natural gas and heating oil decreased as the weather in the US remained warm, suggesting less consumption of energy fuel to warm houses. Hence, stocks of pipeline companies that are into oil and gas storage and transport such as Williams Companies (WMB), Kinder Morgan (KMI), OneOk (OKE), and Spectra Energy Corporation (SE) fell by 6.5%, 12.7%, 7.4%, and 4.4%, respectively, on December 4.
Now let’s analyze the technology sector’s performance on December 4 with the help of moving averages.