US crude oil inventories
According to the EIA’s (U.S. Energy Information Administration) report on January 4, 2017, US crude oil inventories fell ~7.1 MMbbls (million barrels) for the week ended December 30, 2016. However, the markets expected a fall of ~2.2 MMbbls. That compares to a rise of ~0.61 MMbbls in the previous week.
On January 4, 2017, after the crude oil inventories report came out, the United States Oil ETF (USO) rose 1.2%, and the ProShares Ultra Bloomberg Crude Oil (UCO) rose 2.4%. Crude oil prices (USO) react positively to a fall in inventory levels.
The rise in inventories indicates that the supply glut position is increasing. It adds more uncertainty to the movement of crude oil prices.
Crude oil prices have had a huge recovery since the US elections on November 8, 2016. Most of the energy stocks such as Exxon Mobil (XOM), Chevron (CVX), and Schlumberger (SLB) had huge gains in 2016, rising 16.6%, 32.6%, and 21.7%, respectively.
Marc Lasry’s view on the energy sector
Activist investor Marc Lasry spoke about investment opportunities in the energy sector in his January 4, 2017, interview with CNBC. According to Lasry, heavy-oil-weighted (USO) (UCO) (UWTI) stocks could be a better bet in the overall energy sector (XLE). He emphasized that the energy sector’s distressed debt could provide a good investment opportunity.
In the next part of this series, we’ll analyze the performance of non-farm payrolls in December 2016.