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Federal Reserve and OPEC Pressure Crude Oil Prices

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Crude oil prices 

January 2017 WTI (West Texas Intermediate) crude oil futures contracts fell 3.7% and settled at $51.04 per barrel on December 14, 2016. Brent crude oil futures also fell 3.3% and closed at $53.9 per barrel.

Crude oil (PXI) (USL) (ERY) (IYE) prices fell due to skepticism about whether OPEC (Organization of the Petroleum Exporting Countries) will cut production by 1.2 MMbpd (million barrels per day). Members agreed to the production cut at the November 30 meeting. It limited the upside for crude oil prices. Skepticism about OPEC’s ability to cut production by non-OPEC producers limited the upside for crude oil prices. A strong dollar also impacted the upside for crude oil prices.

ETFs like the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) follow crude oil futures contracts. These ETFs fell 3.5% and 6.2%, respectively, on December 14, 2016.

Federal Reserve and US dollar 

On December 14, 2016, the Fed reported that it would raise the interest rate by 25 basis points. As a result, the US Dollar Index appreciated by 0.7% to 101.7 on December 14, 2016. It hit 102.5 on December 15, 2016—the highest level in nearly 14 years.

US dollar and crude oil

The US dollar and crude oil are usually inversely related. A stronger US dollar makes crude oil more expensive for oil importers and vice versa. When the dollar rises, crude oil prices fall. For more on US dollar, read OPEC and the US Dollar: Impact on Crude Oil Prices.

US crude oil inventories 

The EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report on December 14, 2016. It reported that US crude oil inventories fell by 2.6 MMbbls (million barrels) from December 2–9, 2016. We’ll look at US crude oil inventories and their regional breakdown in Part 2 of this series.

Earlier, the API (American Petroleum Institute) estimated that US crude oil inventories rose by 4.7 MMbbls from December 2–9, 2016. The API added that Cushing crude oil inventories rose by 0.6 MMbbls.

Volatility in crude oil prices can impact oil and gas producers’ earnings like Synergy Resources (SYRG), ExxonMobil (XOM), Chevron (CVX), Northern Oil & Gas (NOG), Carrizo Oil & Gas (CRZO), and Triangle Petroleum (TPLM).

Moves in crude oil and natural gas prices also impact funds such as the iShares Global Energy ETF (IXC), the Direxion Daily Energy Bear 3x ETF (ERY), the Fidelity MSCI Energy ETF (FENY), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the United States Brent Oil ETF (BNO).

Series focus 

In this series, we’ll look at US crude oil production, refinery demand, imports, and inventories. We’ll start by looking at US crude oil prices in early morning trade on December 15.

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