uploads///Crude Oil Quant

Could Crude Oil Prices Fall to $40 in April 2017?


Nov. 20 2020, Updated 4:10 p.m. ET

US crude oil

US crude oil (USO) (OIIL) (USL) (DBO) futures contracts for May delivery closed at $48.37 per barrel on March 28, 2017. That’s 1.3% above the previous day’s closing price. Prices rose as Libya’s oil supply was reduced by 250,000 barrels per day due to dissenting armed forces blocking production at two oil fields.

In the trailing week, US crude oil active futures rose 0.30%. During the same period, the Energy Select Sector SPDR ETF (XLE) was unchanged, while the S&P 500 Index (SPY) (SPX-INDEX) rose 0.70%. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.20%, and the technology-heavy NASDAQ Composite (COMP-INDEX) (QQQ) rose 1.4% during the same period. Remember, crude oil prices are an important driver for energy ETFs, and they can also impact the broader markets.

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According to the EIA’s (U.S. Energy Information Administration) STEO (Short-Term Energy Outlook) projection released on March 7, 2017, OECD (Organisation for Economic Co-operation and Development) commercial crude oil and other liquids inventory days of supply could reach 67 in April 2017, the highest since January 2011. Rising global inventories could push oil prices back near $40.

API inventories

On March 28, 2017, the API (American Petroleum Institute) reported a rise of ~1.9 MMbbls (million barrels) in crude oil inventories for the week ended March 24, 2017. On March 29, 2017, the EIA provided inventory data for the week ended March 24, 2017. Crude oil inventories are currently at record highs.

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Key moving averages

Crude oil futures are now trading 7.9% below their 100-day moving average and 3.3% below their 20-day moving average. Prices below the 20-day and 100-day moving averages indicate a bearish sentiment for crude oil prices.

Energy ETFs and series focus

It’s important to remember that crude oil–related sentiments impact ETFs such as the United States Brent Oil ETF (BNO), the PowerShares DWA Energy Momentum ETF (PXI), the Vanguard Energy ETF (VDE), and the ProShares UltraShort Bloomberg Crude Oil (SCO).

In this series, we’ll analyze how fundamental drivers such as rig count, crude oil inventories, and the US dollar are impacting crude oil prices. We’ll also see what the crude oil futures forward curve and the Brent-WTI (West Texas Intermediate) spread might be indicating.

Let’s start by seeing how the rig count impacts oil prices.


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