Investors’ Concerns: Headwinds Could Drag Crude below $30



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.

  1. Why failed Syrian peace talks could lead to downside in crude oil prices
  2. Different energy streams’ price reaction to the recent rise in crude

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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.


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