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OPEC Mania Is Back: Is Crude Oil Outperforming Other Commodities?

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US crude oil

US crude oil (UWTI) (USO) (OIIL) (USL) (SCO) (DWTI) January futures rose 12.2% in the week ended December 2, 2016, on a closing price basis. 

WTI (West Texas Intermediate) crude oil closed at $51.68 per barrel on December 2, a 1.2% rise from the previous trading session. This was crude oil’s highest level in 2016.

The rally in crude oil prices came after OPEC’s (Organization of the Petroleum Exporting Countries) members stuck a production cut deal on November 30, 2016. In the last three trading sessions, US crude oil has risen 14.3%, helping it to outperform the commodity complex.

On December 5, 2016, at 1:57 AM EST, US crude oil (UWTI) (OIIL) was trading at a fall of 1% compared to its closing price on December 2, 2016. The fall in crude oil’s price can likely be attributed to profit booking.

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Gold last week

Gold futures (GLD) fell 0.3% from November 25 to December 2. The fall in gold prices corresponds with a stronger US dollar following Donald Trump’s presidential win. The potential effects of Trump’s policies have boosted the US dollar. Last week, gold had a correlation of -58.7% with the dollar, and the dollar fell 0.7%.

The gold-to-oil ratio stood at 22.7x on December 2, 2016, its lowest level in 2016. On the same day, US crude oil was trading at its highest level of 2016. When the ratio is close to its lows, it indicates that the market sentiment has shifted toward growth-driven commodities and away from safe-haven assets.

Gold is a safe-haven asset. It generally gains during times of economic and financial market uncertainty. Crude oil is a risk asset. It generally gains when economic growth and demand prospects look good.

ETFs

Crude oil–related sentiment also affects 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 how economic data and the US dollar could affect crude oil prices.

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