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Why Did Crude Oil Prices and the US Stock Market Rally?

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Crude oil prices rally for the second day 

NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for April delivery rose by 1.9% and settled at $34.4 per barrel on Tuesday, March 1, 2016. Similarly, Brent crude oil prices rose by 2.3% and closed at $36.81 per barrel. Crude oil prices rose due to the US stock market rally despite the consensus of the rising US crude oil inventory. ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) also moved in the direction of crude oil prices. They rose by 1.7% and 2.5%, respectively, on March 1. The SPDR S&P 500 ETF (SPY) also rose by 2.4%.

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US stocks rally

The US stocks rallied during trade on March 1 due to better-than-expected US manufacturing data. The US PMI (purchasing managers’ index) rose to 51.3 in February 2016. Bloomberg surveys estimated that the US PMI could be around 51.2. It’s a marginal increase since October 2013. A PMI below 50 suggests that the economy is contracting. A PMI above 50 suggests that the economy is expanding. This led to the uptick in the US stock market. It also led to the rise in the US dollar due to the optimism of an improving US economy and improving prospects of a rate hike by the Fed in 2016. Also, China’s central bank reduced the reserve requirement ratio for the Chinese banks for the fifth time in a year on February 29, 2016. As a result, crude oil prices rose on March 1 despite bearish US crude oil inventory data. Read the next part of the series for the latest update on the US crude oil inventory.

Volatility picture

Crude oil prices rose 31% from the low of $26.21 on February 11, 2016, due to the slowing US crude oil production. The prices also rose due to the crude oil production deal between Russia, Saudi Arabia, Venezuela, and Qatar on February 16, 2016. To learn more about the historic deal, read Why Crude Oil Prices Fell despite the OPEC and Non-OPEC Deal. Also, read Did Saudi Arabia Keep Its Word and Freeze Crude Oil Production? and Why OPEC’s Crude Oil Production Fell in February 2016.

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The possible meeting in mid-March 2016 with Russia, Saudi Arabia, and Qatar to stabilize the oil market will continue to uptick oil prices in the near term. Meanwhile, the Russian Energy Minister reported that Russian oil firms would support crude oil production at January’s levels. These comments also boosted crude prices. Russia’s president, Vladimir Putin, stated that key changes might be used to rebalance the crude oil market.

The recent uptick in crude oil prices supports oil producers like the ExxonMobil (XOM), Hess (HES), Chevron (CVX), and Occidental Petroleum (OXY). On the other hand, it has a negative impact on oil refiners like Western Refining (WNR) and Northern Tier Energy (NTI). The uncertainty in the oil and gas market also impacts 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 this series, we’ll discuss the consensus of US crude oil inventory data, crude oil storage by rail cars, key oil producers responsible for global oversupply, Iran’s election, energy companies’ rising debt, and the crude oil price forecast.

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