What concerns crude oil investors?
The Syrian peace talks entered into a deadlock after the main opposition’s political demand. The recent violence in Syria could impact the peace talks. The geopolitical turmoil will likely impact crude oil. It set the platform for a coordinated production cut agreement between OPEC (Organization of the Petroleum Exporting Countries) and non-OPEC oil exporters. Investors should understand that most of the rise in crude oil in the last week was led by an anticipated OPEC and non-OPEC deal. Again, weak economic data coming out of South Korea and China concern investors due to a possible global slowdown in the crude oil demand. This series will focus on the following points.
- Why failed Syrian peace talks could lead to downside in crude oil prices
- Different energy streams’ price reaction to the recent rise in crude
Relief for the energy sector
As of January 29, 2016, WTI crude futures active contracts rose about 26% from the low in January. The rise in crude oil prices led to a spike of about 18% in United States Oil (USO) from its lows in January. The Energy Select Sector SPDR ETF (XLE) rose 7% from its lows in January after a rally in crude oil. ExxonMobil (XOM), Chevron (CVX), and Schlumberger (SLB) account for about 39% of XLE.
The above graph shows the month-to-date performance of USO. In the next part, we’ll discuss the impact that the Syrian peace talks could have on crude oil.