The Fed Provided Some Interesting Market Noise – But Oil Driven by Speculation of an OPEC Russia Alliance
Even though it may seem that crude oil and oil producers are being driven by the Fed, actually the market is trying to price in the potential for Russia to join Saudi Arabia in implementing a coordinated production cut. However, the Federal Reserve’s stance on an interest rate hike is directly correlated to the financial performance of E&P (exploration and production) companies. As a lower crude oil price is already eating their profits, any further rate hike after December 2015 will likely impact the financials of these E&P companies. Experts are expecting more rate hikes in 2016 compared to a single rate hike in 2015.
This series will focus on the moving averages and analyst estimates of different energy stream companies. We’ll also have a technical analysis of European and Chinese (FXI) energy companies.
The downstream segment fell by 2.7%. It includes refiners such as Phillips66, Marathon Petroleum, and others discussed in Part 3 of the series. The United State Oil Fund (USO) rose 2.3% after the status quo from the Fed on interest rates. Normally, if the interest rate rises, currency appreciate against the foreign currencies. As crude is denominated in US dollars, a hike affects currency negatively.
The above chart shows the US Oil Fund Partnership Units (USO) and the PowerShares DB US Dollar Bullish ETF (UUP). It helps explain the negative correlation between crude and the US Dollar Index. Please note that the chart is only for illustrative purpose.
In the next part, we’ll discuss moving averages and analyst estimates for large-capped upstream companies.