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Why Did Crude Oil Prices Rise for the Third Straight Week?

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Third consecutive weekly gain for crude oil

US crude oil prices (USO) rose 3.3% for the week ending May 27, 2016. This was the third consecutive weekly gain for oil. On May 27, US crude oil prices closed at $49.33 per barrel—0.4% below their 2016 closing high of $49.56 on May 25.

The bullishness was driven by supply outages around the world. The PowerShares DB Commodity Index Tracking Fund (DBC) rose 0.95% for the week ending May 27. Most of the gain can be attributed to the rise in crude oil prices. Crude oil (UCO) and its derivatives account for ~15.8% of DBC.

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Copper and iron ore

Industrial metals such as copper (JJC) rose 0.7%, while the VanEck Vectors Steel ETF (SLX) fell 0.6% for the week ending May 27. Copper rose in the last week due to profit-booking as traders covered their short positions. Iron ore prices have been sluggish since China’s (FXI) weak April trade data were released on May 8.

Gold fell last week

Last week, gold futures (GLD) fell 3.1%. In the same week, the S&P 500 Index (SPY) (QQQ) rose 2.2%. Improved investor sentiments in the economy and the equity market drove gold down. Last week was the third consecutive weekly loss for gold.

The gold-to-oil ratio stood at 24.6x on May 27. On February 11, it reached 47.6x—its highest level since 1970. On February 11, crude oil touched a 12-year low. Historically, spikes in the gold-to-oil ratio indicate a change in Market sentiment from growth-driven commodities toward safe-haven assets. The recent fall in the ratio might indicate a shift in the sentiment from gold to crude oil.

Crude oil–weighted stocks

Bonanza Creek Energy (BCEI), Clayton Williams Energy (CWEI), and Energy XXI (EXXI) are crude oil–weighted stocks. They have at least a 60% production mix of crude oil. These stocks could be impacted by weakness in industrial metals and increased bearish sentiment in the broader Market. Crude oil sentiment also impacts ETNs and ETFs such as the United States Brent Oil Fund (BNO), the DWA Energy Momentum Portfolio (PXI), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

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