Crude Oil’s Recovery: What Does Recent Price Action Indicate?



US crude oil

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures contracts for September delivery closed at $46.58 per barrel on August 16, 2016. That’s 1.8% above its previous closing price. It’s also ~9.1% below its highest level in 2016 of $51.23 per barrel on June 8.

The rise in crude oil prices coincides with news that Russia could meet with OPEC (Organization of the Petroleum Exporting Countries) members in October. Crude oil prices recovered this week on hopes that OPEC will hold a meeting in September to discuss potential solutions to current low prices. A statement from Saudi Arabia’s energy minister hinted at some action by OPEC to support prices. Also, a bullish IEA report last week helped support prices.

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On August 16, the American Petroleum Institute reported a build of 1.01 MMbbls (million barrels) in inventories for the week ending on August 12. The report also indicated a build of 2.18 MMbbls in gasoline inventories. The U.S. Energy Information Administration will report its inventory data for the week ending August 12 on August 17, 2016.

The US Dollar Index (UUP) fell 0.8% and closed at 94.79 on August 16, 2016. This also helped crude oil rise. We’ll look at the relationship between the US Dollar Index and crude oil prices later in this series.

Key moving averages

Crude oil futures are now trading 3.9% above their 100-day moving average and 8.7% above their 20-day moving average. Prices breaking above their 20-day and 100-day moving averages indicate bullish momentum for crude oil. The two moving averages might act as downside support for crude oil going forward.

The above graph shows the price performance of crude oil futures relative to key moving averages.

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Energy ETFs

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

Series focus

In this series, we’ll analyze the impact of fundamental drivers such as the rig count, inventories, and the US Dollar Index on crude oil prices.

In the next part, we’ll see how rig counts are impacting oil prices.


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