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OPEC Pumps Oil at a Record Level: Should Energy Investors Wait?

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US crude oil

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) futures contracts for November delivery closed at $51.15 per barrel on October 11, 2016. The contracts were 0.4% below the previous closing price.

The marginal fall in oil prices on October 11, 2016, coincides with the market’s doubts about the execution of the output limit deal among OPEC (Organization of the Petroleum Exporting Countries) members on September 28. OPEC’s deal, Russian President Vladimir Putin’s comments, and falling inventories pushed crude oil prices higher in the last few trading sessions. Between October 4 and October 11, 2016, US crude oil November futures rose 5.1%.

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OPEC output

OPEC pumped a record high of 33.64 million barrels per day of crude oil in September 2016. It was an increase of 160,000 barrels per day compared to the levels in August 2016. Although this conflicts with OPEC’s intentions, the cartel only agreed to discuss the specifics of caps or cuts in its November meeting. Energy investors might have to wait until next year for a clear post-deal direction in OPEC’s production.

Key moving averages

Currently, crude oil futures are trading 7.3% above their 100-day moving average and 8.8% above their 20-day moving average. Prices trading above their 100-day and 20-day moving averages indicate bullish sentiment for crude oil. The 20-day and 100-day 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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