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Crude Oil Is Firming: Are Traders Looking for a Breakout?

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US crude oil

US crude oil (USO) (USL) (OIIL) (DBO) April futures rose 0.4% in the week ending on February 24, 2017. WTI (West Texas Intermediate) crude oil April futures closed at $53.99 per barrel on February 24—an 0.8% fall from the previous trading session.

The fall in oil prices could be attributed to profit-booking. On February 23, 2017, crude oil futures closed at $54.45 per barrel—the highest level since July 6, 2015. However, rising oil rigs could have a negative impact on oil prices. For the week ending on February 24, 2017, oil rigs rose by five and were at 602–the highest level since October 16, 2015.

On February 23, 2017, active oil futures traded at a discount of $0.56 to the futures contracts 12 months ahead—the lowest since November 16, 2014. The fall in the spread could point to tightening in the crude oil demand-supply balance and higher prices to come.

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In February 2017, WTI crude oil active futures traded at a discount of $2.0 per barrel compared to Brent crude oil (BNO) active futures—the lowest since December 22, 2016. The narrowing of the spread might be in anticipation of a rise in US oil exports to global markets to take advantage of supply cuts from OPEC’s deal.

Natural gas

Natural gas (UNG) (BOIL) April futures fell 5.6% in the week ending on February 24, 2017. They closed at $2.83 per MMBtu (million British thermal units) on February 24—a 1.4% rise from the previous trading session. Investors turned bearish due to growing concerns of higher temperatures this winter season. Also, rising US oil rigs could have a negative impact on natural gas prices. However, bullish inventory data and cooler weather forecasts supported natural gas prices at the end of the week. Natural gas prices underperformed the commodity complex in the last four consecutive weeks.

ETFs

Crude oil and natural gas–related sentiment impacts ETFs and ETNs such as the PowerShares DWA Energy Momentum ETF (PXI), the iShares US Oil Equipment & Services (IEZ), the Fidelity MSCI Energy ETF (FENY), and the ProShares UltraShort Bloomberg Crude Oil (SCO).

In the next part of this series, we’ll see how economic data and the US dollar could impact crude oil and natural gas prices.

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