Oil prices gained on OPEC talks and EIA inventory data
After hitting a 2017 low of $45.52 on May 4, 2017, US crude oil (USO) July futures prices rose 5.2% for the week ended May 19, 2017. It was the highest weekly gain since the week ended April 7, 2017.
A fall of 1.8 MMbbls (million barrels) in crude oil inventories and a decline of 0.4 MMbbls in total motor gasoline inventories caused a 0.8% gain in US crude oil July futures. Last week, the API reported a rise in US oil inventories. Talks regarding an extension of OPEC production cuts also supported prices. The inventory spread, OECD inventory levels, and a fall in US oil production were also important factors in oil’s gains.
However, oil rigs rose by eight and were at 720 for the week ending May 19, 2017, the highest since April 24, 2015. Rising oil rigs and the 50-day moving average for crude oil July futures trading below their 200-day moving average could be concerns for oil bulls.
The rise in crude oil prices in the week ending May 19, 2017, was the second consecutive weekly gain after three consecutive weekly losses. US crude oil July futures closed at $50.67 a barrel, up $1.01, or 2% up from the previous day’s closing price. Brent active futures closed at $53.61 a barrel, for a ~5.4% weekly gain. On May 19, 2017, the Brent-WTI crude oil spread was at $3.28.
Natural gas retreats
It was a contrastingly bearish week for natural gas (UNG) as June futures fell 4.9% between May 12 and May 19. Futures closed at $3.26 per million British thermal units on May 19. Earlier in the week, bearishness due to mild temperature forecasts and inventory data contributed to losses in natural gas prices.
Natural gas rigs were at 180 for the week ending May 19, 2017, a rise of eight rigs compared to the previous week. Rising US oil rigs and an EIA forecast for a fall in natural gas consumption in 2017 could also have a negative impact on natural gas prices in the longer term.
Broad market performance
Between May 12 and May 19, 2017, the Energy Select Sector SPDR ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 0.5% and 0.7%, respectively. The broad market S&P 500 Index (SPY) (SPX-INDEX) fell 0.3%. During the same period, the Dow Jones Industrial Average (DIA) (DJIA-INDEX) fell 0.3%. Energy accounts for ~6.6% of the S&P 500 Index and ~6.4% of the Dow Jones Industrial Average Index. Crude oil is an important driver for energy ETFs and broader market indexes.
In the week between May 12 and May 19, 2017, energy subsectors were mixed. The integrated-energy-heavy Energy Select Sector SPDR ETF (XLE) rose 0.5%. The Alerian MLP ETF (AMLP), which tracks midstream MLPs, rose 0.1%. The upstream and refining company tracking SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 0.7%. However, the VanEck Vectors Oil Services ETF (OIH), which tracks oilfield equipment and services companies, rose 3.7% in the same week.
In the next section, we’ll discuss last week’s best and worst performers in the sector.