Crude oil prices and US stock exchanges
WTI (West Texas Intermediate) crude oil (FXN) (SCO) (FENY) futures contracts for June delivery are near a five-month low as of May 9, 2017. So far in 2017, crude oil prices and broader markets such as the S&P 500 (SPY) (SPX-INDEX) are diverging.
SPY has risen 7.2% YTD (year-to-date). However, US crude oil prices have fallen ~17.8% YTD. US crude oil prices have fallen ~1% in the last 12 months. SPY has risen ~16.6% during the same period. So, bullish momentum in the US stock market could partially limit the downside for oil prices. For more on crude oil prices, read part one of this series.
Crude oil’s highs in the last 15 months
US crude oil prices settled at $54.45 per barrel on February 23, 2017, the highest level since June 2015. As of May 8, 2017, crude oil prices were 14.7% below their highs.
Key bullish drivers for crude oil in 2017
- a possible extension of major oil producers’ production cut deal beyond 2017
- expectations of a fall in OECD crude oil inventories
- high Chinese crude oil imports
- expectations of a rise in India’s crude oil imports and demand in 2017
Crude oil’s lows in the last 15 months
US crude oil settled at $26.21 per barrel on February 11, 2016. Crude oil prices hit a 13-year low due to the following factors:
- record US crude oil production in 2015
- record OPEC crude oil production
- record Russian oil production
- record global crude oil and high refined product inventories
As of May 8, 2017, crude oil prices have risen 77% from their 2016 lows. Higher crude oil (IEZ) (BNO) (XES) prices have a positive impact on the earnings of oil producers such as Apache (APA), Warren Resources (WRES), and QEP Resources (QEP).
Key bearish drivers for crude oil in 2017
- a rise in US crude oil rigs to a 24-month high
- near-record US crude oil inventories
- a rise in US crude oil production
Crude oil price forecasts
Crude oil prices are under pressure due to the factors mentioned above. Prices are trading below their 20-day, 50-day, 100-day, and 200-day moving averages of $50, $50.6, $52.8, and $51.6 per barrel as of May 9, 2017, which suggests more downside for oil prices. Some market surveys suggest oil could test $40 per barrel in 2017 if supplies from the US keep on rising. For more on crude oil price forecasts, read the last part of the series.
In the next part of the series, we’ll look at how Cushing crude oil inventories impact crude oil prices.