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Are Oil Bulls in Trouble?

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Nov. 20 2020, Updated 3:13 p.m. ET

US crude oil last week

WTI (West Texas Intermediate) crude oil June futures closed at $49.62 per barrel on April 21, 2017—a 2.1% fall from the previous trading session. Active futures were below the $50 level for the first time since March 30, 2017. June futures for US crude oil (USO)(USL)(OIIL)(DBO) fell 7.4% between April 13 and April 21.

During this period, the Energy Select Sector SPDR ETF (XLE) fell 2.2% while the S&P 500 Index (SPY)(IWM)(SPX-INDEX) rose 0.8%. The Dow Jones Industrial Average (DIA)(DJIA-INDEX) rose 0.5%. Energy accounts for 6.6% of the S&P 500 Index and 6.4% of the Dow Jones Industrial Average Index.

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The S&P 400 Midcap 400 Index (IVOO)(MID-INDEX), which has 3.4% exposure to the energy sector, rose 2.2% during this period. The FTSE 100 Index (UKX-INDEX)(EWU) fell 2.9% while the CAC 40 Index (PX1-INDEX)(EWQ) fell 0.2% during this period. Oil and gas companies account for 14.1% of the FTSE 100 Index and 11.6% of the CAC 40 Index. Movements in crude oil can drive broader equity markets. Crude oil is also an important driver for energy ETFs.

US crude oil inventories fell 1.0 MMbbls (million barrels) to ~532.3 MMbbls in the week ended April 14, 2017, according to the EIA (U.S. Energy Information Administration) data released on April 19, 2017. However, a rise of 1.5 MMbbls in motor gasoline inventories caused a 3.8% fall in WTI (West Texas Intermediate) crude oil June futures on April 19.

US oil production reached ~9.3 MMbbls per day in the week ended April 14, 2017. That’s a rise of ~0.56 MMbbls per day since the OPEC (Organization of the Petroleum Exporting Countries) production cut deal in November 2016. The rise in US oil production amounts to 46.7% of OPEC’s pledged output cuts.

Oil rigs rose by 5 and were at 688 for the week ending April 21, 2017—the highest since May 1, 2015. Rising oil rigs could increase crude oil supplies.

Natural gas

Natural gas (UNG)(BOIL) May futures fell 3.9% between April 13 and 21. They closed at $3.10 per million British thermal units on April 21—a fall of 1.8% from the previous trading session. Earlier in the week, bearishness due to mild temperatures and inventory data contributed to losses in natural gas prices.

Rising US oil rigs could also have a negative impact on natural gas prices. Natural gas rigs were at 167 for the week ending April 21, 2017–a rise of five rigs compared to the last week.

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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