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How OPEC Could Affect Oil Prices

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US crude oil

On May 23, 2017, US crude oil (USL) (DBO (USO) (OIIL) July futures closed at $51.47 per barrel, 0.7% more than the previous day’s closing price. July futures rose 5% in the trailing week.

In comparison, here’s how some major global equity indexes and ETFs performed between May 16 and May 23, 2017:

  • the Energy Select Sector SPDR ETF (XLE): 0.2%
  • the S&P 500 Index: almost unchanged
  • the Dow Jones Industrial Average: -0.1%
  • the S&P 400 Mid Cap Index: -0.3%
  • the FTSE 100 Index: -0.5%
  • the CAC 40 Index: -1.1%

Clearly, global equity indexes and XLE are ignoring oil’s gains. However, oil can be an important catalyst for global equities and energy ETFs.

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What drove crude oil last week?

On May 25, 2017, OPEC members will meet in Vienna to discuss a possible nine-month extension to current production cuts. Markets also expect higher production cut quotas for each member. Currently, this event is the most important driver for oil prices apart from inventory data. If OPEC members fail to reach an agreement, or the cuts are not seen as being large enough, it could send oil prices downward.

API inventories

On May 23, 2017, API reported a fall of ~1.5 MMbbls (million barrels) and ~3.2 MMbbls in crude oil inventories and gasoline inventories, respectively, for the week ended May 19, 2017. If the EIA reports similar drops in inventories, it could be bullish for oil prices.

US crude oil’s key moving average

Traders should stay cautious on their bullish bets because US crude oil July futures’ 50-day moving average (or DMA) is trading 3.6% below their 200 DMA. While US crude oil July futures are 5.6% above their 20 DMA, they’re 1.8% below their 100 DMA. Prices will likely face upside resistance at the 100 DMA, and sentiment will turn clearly bullish once the 50 DMA crosses back above the 200 DMA.

In the next part, we’ll see how fundamental factors could be bearish for oil prices.

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