Crude oil price carnage continues
The US benchmark WTI (West Texas Intermediate) crude oil futures contracts for February delivery fell by 6.7% and closed at $26.55 per barrel in yesterday’s trade. Similarly, Brent crude oil futures fell by 3% and settled at $27.88 per barrel. US crude oil prices plunged due to the consensus of rising US crude oil inventory despite the recent cold winter weather. Brent oil also fell due to oversupply concerns and the Iran fear factor. Oil-tracking ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) leveraged the performance of WTI oil prices in yesterday’s trade. Falling crude oil prices continue to weigh on broader indexes like the SPDR S&P 500 ETF (SPY), which also fell in yesterday’s trade.
WTI crude oil prices test new low
In yesterday’s trade, WTI crude oil prices hit a fresh intraday low of $26.19—the lowest crude oil price since 2003. US crude oil prices have fallen by 28% in 2016. They fell by 53% in 2015 and have fallen more than 70% since June 2014. The consensus of rising crude oil inventory is weighing on US crude oil prices. We’ll explore inventory in more detail in the next part of the series.
Brent crude oil is trading close to 2003 levels due to the rising dollar and the consensus of rising supply from Iran, which we’ll cover in the sixth part of this series.
US WTI crude oil futures contracts expired yesterday. The differential between February and March 2016 WTI futures contracts increased from $1.15 per barrel to $1.80 per barrel as compared with the previous day. The expiration also led to a massive sell-off in WTI futures contracts, as futures contracts generally adjust to the spot prices. Record-low oil prices affect the performance and earnings of oil and gas producers like Chevron (CVX), ExxonMobil (XOM), Occidental Petroleum (OXY), Hess (HES), and Marathon Oil (MRO). Currently, Brent oil is trading at a premium to WTI crude oil, as of yesterday’s closing. However, that could change this year. For more on this, read Why WTI Crude Oil Could Trade at a Premium to Brent Oil in 2016.
World economic growth and global markets
The IMF (International Monetary Fund) has downgraded the world’s economic growth outlook. This led to pessimism across the global market and the oil sector, and the Dow Jones plunged in yesterday’s trade. The IMF projects that the world economy will grow by 3.4% in 2016, and it has lowered its economic projections for emerging economies. Slowing economic activity in China, Russia, and Brazil is also weighing on the global market.