Why Oil Is Seeing a Comeback

US crude oil

US crude oil (USO) (OIIL) (USL) (DBO) futures contracts for June 2017 delivery closed at $49.07 per barrel on May 17, 2017, 0.8% more than the previous day’s closing price. Between May 10 and May 17, US crude oil June futures gained 3.7%. Bullish sentiment because of OPEC’s (Organization of the Petroleum Exporting Countries) production cuts and EIA inventory data helped crude oil prices rise.

Why Oil Is Seeing a Comeback

Though oil prices rose on May 17, the Energy Select Sector SPDR ETF (XLE) fell 1.2%, while the S&P 500 (SPY) (IVV) (VNN) (SPX-INDEX) fell 1.7%. Broad equity markets fell as fears over the continuation of the Trump presidency took their toll.

Crude oil is key for global equities. Between May 10 and May 17, the Dow Jones Industrial Average (DJIA-INDEX) (DIA) fell 1.4%, while the S&P Mid Cap 400 (IVOO) (MID-INDEX) fell 2.6%. The FTSE 100 (UKX-INDEX) (EWU) rose 1.6%, and the CAC 40 (PX1-INDEX) (EWQ) fell 1.5%.

On May 17, 2017, the IEA (International Energy Agency) suggested that even if OPEC continued with its production cuts in 2H17, oil stocks could remain above their five-year average, which would be a concern for oil bulls. In the next part of this series, we’ll discuss how oil rigs could impact oil prices. Later, we’ll discuss oil inventories.

EIA inventories

On May 16, 2017, the EIA (Energy Information Administration) reported a fall of ~1.8 MMbbls (million barrels) in crude oil inventories for the week ended May 12, 2017. The EIA also reported a fall of ~0.4 MMbbls in gasoline inventories. A fall in inventories could ease concerns about a glut in crude oil and its refined products.

Key moving averages

Crude oil June futures are now trading 6.2% below their 100-day moving average but 1.6% above their 20-day moving average. More importantly, the 50-day moving average is 3.7% below the 200-day moving average after having crossed below it on April 27, 2017, which is a bearish signal for crude oil prices.