uploads///Crude Oil Performance Relative To The Commodity Complex

Why Did Crude Oil Fall 2.2% Last Week?


Dec. 4 2020, Updated 10:52 a.m. ET

Why did crude oil fall last week?

US crude oil prices (USO) (OIIL) fell by 2.2% in the week ended June 17, 2016. Crude oil closed at $47.98 per barrel on the same day. US crude oil is 6.3% below its 2016 high of $51.23, which it saw on June 8, 2016.

The bearishness on US crude oil mainly resulted from a rise in the rig count. The number of oil rigs has risen by 18 in the last three weeks, raising concerns about resilient supplies. On the global front, Brexit is also impacting crude oil prices.

The PowerShares DB Commodity Tracking ETF (DBC) fell by 0.58% in the week ended June 17, 2016. Most of DBC’s loss can be attributed to the fall in crude oil. Together, crude oil and its derivatives account for ~15.8% of DBC.

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Copper and iron ore

Industrial metals such as copper (JJC) rose by 1%, while iron ore (SLX) fell by 2.9%. Iron ore and copper prices have been sluggish since China’s (FXI) weak April trade data were released on May 8, 2016.

Most of copper’s weekly gain came after the Federal Reserve kept interest rates unchanged. On June 15, copper futures rose by 2.4% following the Fed’s announcement. The US dollar (UUP) slipped 0.33% on the same day.

Iron ore and copper’s recovery started a month before crude oil began its recovery on February 11. Market sentiments on industrial metals could impact crude oil–related sentiments.

Gold rose last week

Gold futures (GLD) rose by 1.5% between June 10 and June 17. The rally in gold prices started after the May US non-farm payrolls data missed forecasts on June 3. A weaker US Dollar Index also boosted gold last week. Last week, the dollar index fell 0.38%. Fear about the Brexit was also a major driver for gold.

The gold-to-oil ratio stood at 26.93x on June 17, 2016. On February 11, it reached 47.60x—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.

Crude oil–weighted stocks

Bonanza Creek Energy (BCEI), Clayton Williams Energy (CWEI), Denbury Resources (DNR), and Energy XXI (EXXI) are crude oil–weighted stocks. They have at least 60% of their production mixes in crude oil. These stocks could be impacted by mixed industrial metals sentiments and the increased bearishness in the commodity market.

Crude oil sentiments also impact ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

In the next part of the series, we’ll look at the implied volatilities for crude oil and natural gas.


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