uploads/2016/09/image001.png

OPEC Is Scaring Oil Investors—Again

By

Updated

US crude oil last week

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) November futures rose 2% in the week ending September 23, 2016, on a closing price basis.

WTI (West Texas Intermediate) crude oil closed at $44.48 per barrel on September 23, which represents a ~4% fall from the previous trading session.

Article continues below advertisement

OPEC disagreement

In a major setback to oil investors, the world’s biggest producer of crude oil, Saudi Arabia, expects no output limit deal in the OPEC (Organization of the Petroleum Exporting Countries) members meeting in Algeria on September 28, 2016. On September 23, 2016, oil tumbled following this news.

On September 26, 2016, at 12:55 AM EST, US crude oil (UWTI) (OIIL) (SCO) active futures rose ~0.7% over the closing price on September 23, 2016.

Crude oil last week

Earlier in the week ending September 23, 2016, crude oil prices rose due to the weaker US dollar and a bullish EIA (US Energy Information Administration) inventory report.

US crude oil is currently 13.2% below its 2016 high of $51.23 on a closing price basis.

Article continues below advertisement

Copper and iron ore

Copper (JJC) rose 1.9%, and iron ore (SLX) rose 1.5% between September 16 and September 23, 2016. Most of the gain in iron ore and copper prices came after the Fed announced that it would keep interest rates unchanged on September 21, 2016. Between September 21 and September 23, the US dollar fell 0.2%.

Recoveries in iron ore and copper prices started one month before crude oil began to recover on February 11, 2016. Market sentiments surrounding industrial metals such as copper and iron ore could indicate crude oil-related sentiments as well.

Gold last week

Gold futures (GLD) rose 2.4% from September 16 to September 23. The rise in gold can be attributed to the weaker US dollar, which fell 0.6% during the same period. In the last five trading sessions, the correlation between gold futures and the dollar index was -86.4%.

The gold-to-oil ratio stood at 30x on September 23, 2016. On February 11, 2016, 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 changes in market sentiment from growth-driven commodities to safe-haven assets.

ETFs

Crude oil-related sentiment also impacts ETFs and ETNs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the DB Crude Oil Double Short ETN (DTO), the iShares US Oil Equipment & Services ETF (IEZ), the Fidelity MSCI Energy Index ETF (FENY), the United States Oil ETF (USO), the Credit Suisse X-Links WTI Crude Oil ETN (OIIL), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).

In the next part of this series, we’ll look at the impact of the dollar index on crude oil prices.

Advertisement

More From Market Realist