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Crude Oil Prices Fall Again: Is the Production Freeze Worthless?

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Crude oil prices fall for the second straight day

On March 24, 2016, WTI (West Texas Intermediate) crude oil prices fell for the second consecutive day to close at $39.46 per barrel, below the psychological level of $40. In the last two trading sessions, WTI crude oil futures have fallen about 4.8%. The rising US commercial inventory and doubts about the production freeze are looming over the market. The graph below shows last week’s WTI crude oil price movement.

Crude Oil Prices Fall Again: Is the Production Freeze Worthless?

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Crude oil inventory data put pressure on crude oil prices

The EIA (U.S. Energy Information Administration) reported that commercial crude oil (UCO) (USO) (OIL) inventories rose by 9.4 MMbbls (million barrels) and stood at 532.5 MMbbls for the week ending March 18, 2016. Crude oil futures fell about 4% and closed at $39.79 per barrel on March 23. WTI crude oil is heading back to the crucial support level of $38.50. Previously, WTI crude oil rebounded from an important resistance level of $41.40. WTI crude oil prices hit a high of $50.92 on October 9, 2015, and a low of $26.05 on February 11, 2016.

Why production freeze talks are worthless

Neil Atkinson, head of the International Energy Agency’s oil industry and markets division, indicated that production freeze talks are “worthless” as far as crude oil prices are concerned. He pointed out that Saudi Arabia is the only country that can increase its output. Other countries that are willing to participate in the production freeze talks are already operating at maximum capacity.

Energy ETFs

On March 24, the Energy Select Sector SPDR Fund (XLE) rose despite the 1% fall in WTI crude oil futures. Upstream stock such as Northern Oil & Gas (NOG), Denbury Resources (DNR), and Kosmos Energy (KOS) fell 5.4%, 7.4%, and 9.9%, respectively. They operate with crude oil production mixes of 87%, 100%, and 94.9%, respectively.

In the next part of this series, we’ll look at natural gas prices.

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