Crude oil prices
March WTI (West Texas Intermediate) crude oil (USO) (XLE) (IYE) futures contracts fell 0.7% to $52.8 per barrel in electronic trade at 4:45 AM EST on February 15, 2017. Crude oil prices fell due to the API’s (American Petroleum Institute) bearish crude oil inventory report. For more on crude oil prices, read Part 1 of the series.
Crude oil prices could collapse due to the following:
- The US dollar (UUP) rose ~0.3% to 100.23 on February 14, 2017. It’s near a 14-year high.
- There are expectations of a rise in US crude oil inventories.
- US shale oil productionUS crude oil rigs is expected to increase by 80,000 bpd (barrels per day) in March 2017—the largest increase in the last five months.
- There was a rise in US shale oil productionUS crude oil rigs.
- Libya and Nigeria’s crude oil production rose by 10,000 bpd and 100,000 bpd, respectively, in January 2017—compared to the previous month.
- Iran’s crude oil production rose by 50,000 bpd to 3.8 MMbpd in January 2017—compared to the previous month.
- The EIA (U.S. Energy Information Administration) expects US crude oil production to rise to a 48-year high in 2018.
Correction in crude oil prices
Crude oil prices have been trading between $50 per barrel and $54 per barrel since January 2017. Crude oil prices factored in the fundamental drivers mentioned above.
However, crude oil prices corrected by almost $10 per barrel the last two times. Crude oil prices hit highs in June 2016 and October 2016. So, prices might collapse if OPEC’s production cut doesn’t last long or if there’s a lack of compliance in major oil producers’ production cut deal. Saudi Arabia and Russia are expected to have large production cuts. The extension of the production cut deal could mean relatively lower income for Saudi Arabia and Russia despite higher oil prices due to large production cuts. Production cuts probably won’t persist in the long term.
Moves in crude oil (XLE) (XOP) (FENY) prices impact on oil and gas exploration and production companies’ earnings such as Saudi Aramco, Rosneft, Marathon Oil (MRO), Denbury Resources (DNR), and QEP Resources (QEP).
Next, we’ll look at the API’s estimates for US crude oil inventories.