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Why Did WTI Fall More than Brent Crude Oil Prices?

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Crude oil prices fell again  

WTI (West Texas Intermediate) crude oil futures contracts for January delivery fell by 4.7% and closed at $39.97 per barrel during the first week of December 2015. The prices were volatile due to OPEC’s (Organization of the Petroleum Exporting Countries) meeting and the appreciating US dollar. The US benchmark following ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) also fell in the direction of US crude oil prices during the same period.

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OPEC’s meeting 

OPEC’s meeting was held on Friday, December 4, 2015, in Vienna. The meeting showcased that OPEC member nations decided to produce at record levels with no price ceiling and production quotas for the group. It fueled the sentiments of an extended bear market in the global glut oil market. Oil prices fell in Friday’s trade. WTI, the US benchmark, fell by 2.7%. Brent, the global benchmark, fell by 1.9% on December 4. In the next part of this series, we’ll discuss OPEC’s meeting in more detail.

US dollar

WTI crude oil prices fell more than Brent crude oil prices in Friday’s trade. Why? The US dollar appreciated by 0.75% against the basket of global currencies on December 4, 2015. The US dollar appreciated due to the strong US jobs data. The US Department of Labor reported that the US economy added 211,000 jobs in November 2015. It’s marginally more than the market estimation.

The better-than-expected jobs data boosted the speculation of a hike in the interest rate by the Fed. Gold prices also rose in Friday’s trade. These indicators suggested that the Fed might hike the interest rate in December 2015. The appreciation of the US dollar makes crude oil more expensive for crude oil importers in their domestic currencies. As a result, US crude oil fell more than Brent crude oil.

A wider Brent and WTI spread benefit US refiners like Tesoro (TSO), Valero Energy (VLO), Phillips 66 (PSX), and Marathon Petroleum (MPC). However, it impacts US oil producers like Apache (APA) and Marathon Oil (MRO).

Hedge funds 

On December 4, 2015, the US CFTC (Commodity Futures Trading Commission) published its weekly COT (Commitment of Traders) report. The data projected that hedge funds reduced their long positions for the fourth straight week for the week ending December 1, 2015. However, commercial oil producers continued to increase their bearish positions. The total long positions held by large hedge funds and speculators was at 208,478 for the week ending December 1, 2015. It suggests that crude oil prices are under pressure.

The uncertainty in the energy market impacts ETFs like the iShares US Oil Equipment & Services ETF (IEZ) and the Fidelity MSCI Energy Index ETF (FENY).

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