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Crude Oil Prices Tumbled Almost 6% in Single Trading Session

Gordon Kristopher - Author
By

Nov. 20 2020, Updated 3:05 p.m. ET

Crude oil price action 

The US benchmark March WTI (West Texas Intermediate) crude oil futures contracts fell by 6.0% and closed at $31.62 per barrel on February 1, 2016. Global benchmark Brent oil futures fell by 1.4% and closed at $34.24 per barrel.

Oil prices fell for the first time in the last five trading sessions due to the Chinese slowdown and fading crude oil production cuts from Russia and OPEC (Organization of the Petroleum Exporting Countries). ETFs such as the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) moved in the direction of crude oil prices. These ETFs fell by 9.0% and 13.2%, respectively, in yesterday’s trade. The SPDR S&P 500 ETF (SPY) was almost flat in yesterday’s trade.

[marketrealist-chart id=1018846]

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Chinese manufacturing contraction 

The Chinese PMI (Purchasing Managers’ Index) was released on Monday, February 1, 2016. Government data showed the Chinese PMI was at 49.4 in January 2016 compared to Reuter’s survey of 49.6. The weaker-than-expected Chinese PMI data weighed on the global oil market.

The Chinese PMI was at 49.7 in December 2015. PMI data above 50 suggest expansion. Data below 50 suggest a contraction in business activity. The Chinese PMI fell for the sixth consecutive week and tested the lowest level since 2012. The slowing Chinese economy will drive pessimism of a weaker oil demand. China is the second largest consumer of crude oil. For more on this, you can read China’s Crude Oil Imports: Teapot Refiners Will Be Key Catalysts.

Long-term lower oil prices might have affected the earnings of oil producers in 4Q15. Chevron (CVX), Exxon Mobil (XOM), Royal Dutch Shell (RDS.A), ConocoPhillips (COP), BP (BP), and Total (TOT) have collectively lost more than $200 billion in market capitalization in 2015, according to a CNBC analysis. Read the next part of the series to know more how earnings and revenues of oil companies affected the energy sector and the S&P 500 in 4Q15 due to lower oil prices.

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Fading alliance between Russia and OPEC

The latest development suggests that OPEC and Russia might not opt for a coordinated oil production cut for supporting oil prices and oil producers. OPEC sources said that it was too early to set an emergency meeting for a collective production cut.

For more on the possible alliance, read Will Russia and OPEC Join Hands and Cut Crude Oil Production? You can also read War of Words: OPEC Nations and the Crude Oil Market to know more about how production for OPEC, the United States, and Iran would affect oil prices in 2016. In Part 3 of this series, we’ll look at API crude oil inventory data.

Volatility analysis

Oil prices tumbled almost 6% in a single day after rallying 25% since January 20, 2016. The current Brent and WTI spread is $2.62 per barrel. It’s important to note that the current WTI and Brent spread makes US crude oil exports unviable. Since June 2014, oil prices have fallen more than 70% due to long-term oversupply concerns.

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