Crude oil prices fall
WTI (West Texas Intermediate) crude oil futures contracts for April delivery fell 0.88% and settled at $32.78 per barrel on Friday, February 26, 2016. Brent crude oil prices fell 0.54% and closed at $35.10 per barrel. Oil prices fell due to the rising US dollar, profit-booking, and long-term oversupply concerns. ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) moved in the direction of crude oil prices. USO and UCO fell 0.2% and 0.4%, respectively. The SPDR S&P 500 ETF (SPY) also fell 0.2% in Friday’s trade.
US dollar and profit-booking
The US dollar index (DXY) rose 0.9% against the basket of currencies on Friday, February 26, 2016. DXY rose due to the strong core inflation data for January 2016. January marked the biggest month-over-month gain for the core inflation data (excluding food and energy) since January 2012. This increases the likelihood of another interest rate hike by the Federal Reserve in 2016.
Consequently, crude oil prices tumbled in Friday’s trade. The appreciating US dollar makes dollar-denominated crude oil expensive for crude oil-importing economies. The prospects of the dollar rising further in 2016 will continue to put pressure on crude oil prices in 2016. The 12-year-low crude oil prices will negatively affect the profitability of oil producers like Anadarko Petroleum (APC), Statoil (STO), Halcón Resources (HK), PetroChina (PTR), and Petróleo Brasileiro Petrobas (PBR).
Meanwhile, Eulogio del Pino, Venezuela’s oil minister, made comments on Thursday, February 25, 2016, regarding a possible meeting in mid-March 2016 with Russia, Saudi Arabia, and Qatar to stabilize the oil market. This led to the rise in oil prices on Thursday. On Friday, prices started to fall due to profit-booking.
On February 16, 2016, Russia, Saudi Arabia, Venezuela, and Qatar decided to freeze crude oil production at January 2016 levels. To learn more about the historic deal, read Why Crude Oil Prices Fell despite the OPEC and Non-OPEC Deal.
The roller-coaster ride in the oil and gas market affects ETFs like the iShares Global Energy ETF (IXC), the SPDR S&P Oil & Gas Equipment & Services ETF (XES), and the First Trust Energy AlphaDEX Fund (FXN).
In the next part of this series, we’ll look at the crude oil inventory at Cushing, Oklahoma, and what this means for crude oil prices. The US crude oil rig count data and hedge fund positions are covered in the third and fourth parts of this series, respectively.