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Will US Crude Oil Stay above $50?

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Nov. 20 2020, Updated 11:54 a.m. ET

US crude oil last week

WTI (West Texas Intermediate) crude oil May futures closed at $50.60 per barrel on Friday, March 31, 2017, which was a 0.5% rise from the previous trading session. May futures for US crude oil (USO) (USL) (OIIL) (DBO) rose 5.5% in the week ended March 31.

In the same week, the Energy Select Sector SPDR ETF (XLE) rose 2%, and the S&P 500 Index (SPY) (IWM) (SPX-INDEX) rose 0.8%. The Dow Jones Industrial Average (DIA) (DJIA-INDEX) rose 0.3%.

Motor gasoline and distillate fuel inventories fell 3.7 MMbbls and 2.5 MMbbls, respectively, for the week ended March 24, 2017, much more than anticipated, which contributed to the gains in crude oil prices last week. Plus, talk of OPEC’s production cut deal being extended also supported prices.

However, US crude oil inventories reached ~534 MMbbls (million barrels) in the week ending March 24, 2017, a record high since 1982, according to the EIA (the US Energy Information Administration) data released on March 29, 2017.

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Plus, since OPEC’s production cut deal in November 2016, US oil production has risen ~0.5 million barrels a day, 42% of OPEC’s pledged production cuts according to EIA weekly production data. Additionally, US oil rigs for the week ended March 31, 2017, stood at 662, the highest since September 11, 2015. Rising oil rigs could impact oil prices adversely. So, US crude oil prices could find it difficult to rise more from here, or even hold above the $50 mark for long. The above bearish factors are also responsible for a fall of 5.8% in US crude oil prices in 1Q17.

Natural gas

Natural gas (UNG) (BOIL) May futures rose 1.2% in the week ended March 31, 2017. They closed at $3.19 per MMBtu (million British thermal units) on March 31, unchanged from the previous trading session. In the first quarter of 2017, natural gas active futures fell 14.3%. Warmer temperatures during the winter season were largely responsible for the fall in natural gas prices. Natural gas prices rose on expectations of an improved supply-demand balance. However, rising US oil rigs could impact natural gas prices adversely.

Energy ETFs

Crude oil is an important driver for energy ETFs. Crude oil and natural gas sentiments impact 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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