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Crude Oil Prices Hit 3-Week High on Speculation of Production Cut

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Crude oil price action

March WTI (West Texas Intermediate) crude oil futures rose by 2.9% and closed at $33.22 per barrel in yesterday’s trade. Brent crude oil futures rose by 2.4% and closed at $33.89 per barrel. Crude oil prices rose for the third consecutive day due to the speculation of collective production cuts from Russia and OPEC (Organization of the Petroleum Exporting Countries). The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) moved in the direction of oil prices yesterday, rising by 5.7% and 11.6%, respectively. The SPDR S&P 500 ETF (SPY) was almost flat in yesterday’s trade.

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Rebound from historic lows 

Oil prices have fallen by 70% since June 2014 due to long-term oversupply concerns. Prices tested the 13-year low of $26.55 per barrel on January 20, 2016. Oil prices have rallied by 25% in the last seven trading sessions. Prices have rallied due to short covering, the depreciating US dollar, and speculation of collective production cuts. Technically, crude oil prices have entered into a bull market. The surge in oil prices benefits oil producers like ExxonMobil (XOM), Chevron (CVX), Occidental Petroleum (OXY), Hess (HES), and Marathon Oil (MRO). On the other hand, they affect the input costs of oil refiners like Western Refining (WNR), Alon USA Partners (ALDW), and Northern Tier Energy (NTI).

US dollar falls 

The consensus of slow, gradual rate hikes by the Federal Reserve has weighed on the US Dollar Index (DXY), which fell against the global basket of currencies in yesterday’s trade. Consequently, the inversely correlated crude oil prices rose in yesterday’s trade. The depreciating US dollar makes crude oil more affordable for oil-importing countries.

Possible alliance between Russia and OPEC 

The latest reports from Bloomberg suggest that OPEC has no scheduled plans to meet Russia for a collective production cut. The speculation increased when the Ministry of Energy of the Russian Federation reported on January 27, 2016, that a meeting could be scheduled next month to discuss a possible alliance with OPEC for collective production cuts.

However, OPEC members are stubborn, and their intention to scale up crude oil production is evident. Iran is also ramping up production despite the depressed energy market. For more on the possible alliance, read Will Russia and OPEC Join Hands and Cut Crude Oil Production? Also, read War of Words: OPEC Nations and the Crude Oil Market.

Read the next part of this series for updates on the Cushing, Oklahoma, and nationwide crude oil inventories.

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