uploads///US Crude Oil Quant

Is $30 for Crude Oil Coming?

Rabindra Samanta - Author

Dec. 4 2020, Updated 10:53 a.m. ET

US crude oil

US crude oil (USO) (OIIL) (USL) (DBO) futures contracts for May delivery closed at $48.24 per barrel on March 21, 2017, 1.4% lower than the previous day’s closing price. Prices fell due to concerns about rising US oil production and rising global inventories.

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Rising global oil inventories

According to an OPEC report, OECD (Organisation for Economic Co-operation and Development) commercial oil stockpiles reached 3,006 million barrels, 278 million barrels above the five-year average in January 2017. In February 2016, US oil prices fell below the $30 level due to rising oil inventories and production. In part two of this series, we’ll discuss how oil rigs impact US oil production.

In the trailing week, US crude oil active futures fell 0.2%. During the same period, the Energy Select Sector SPDR ETF (XLE) rose 0.6%, while the S&P 500 Index (SPY) (SPX-INDEX) fell 0.9%. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) fell 0.9% and the technology-heavy NASDAQ Composite (COMP-INDEX) (QQQ) fell 1.1% during the same period. Remember, crude oil prices are an important driver for energy ETFs, and they can also impact broader markets.

API inventories

On March 21, 2017, the API (American Petroleum Institute) reported a rise of ~4.5 MMbbls (million barrels) in crude oil inventories for the week ending March 17, 2017. The EIA (US Energy Information Administration) will provide inventory data for the week ending March 17, 2017, on March 22, 2017. Crude oil inventories could again hit a new record high even if the EIA reports an increase that’s just 6% of the API’s 4.5 million barrel increase.

Following the bearish API crude oil inventories report, US crude oil (OIIL) May futures were trading at $47.34 per barrel on March 22, 2017, at 2:29 AM EST, a 1.8% fall over their closing price on March 21, 2017.

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Key moving averages

Crude oil futures are now trading 8.4% below their 100-day moving average and 6.5% below their 20-day moving average. Prices below the 20-day and 100-day moving averages indicate bearish sentiment for crude oil prices.

Energy ETFs and series focus

It’s important to remember that crude-related sentiments impact ETFs like 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 like rig count, crude oil inventories, and the US dollar impact crude oil prices. We’ll also try to understand what the crude oil futures forward curve and the Brent-WTI spread might be indicating.

Next, we’ll see how rig counts impact oil prices.


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