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Will US Crude Oil Prices Recover from 10-Month Lows?

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US crude oil prices 

US crude oil (XLE) (USO) (UCO) futures contracts for August delivery fell 2.3% and settled at $42.53 per barrel on June 21, 2017. It’s the lowest settlement since August 10, 2016. August Brent crude oil futures fell 2.6% and closed at $44.8 per barrel on the same day.

The energy sector is dragging the S&P 500 (SPY) (SPX-INDEX). The S&P 500 fell 0.06% on June 21, 2017.

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Crude oil futures performance 

Brent and US crude of futures have fallen 23.8% and 25.3% year-to-date. Crude oil futures have entered into a bear market. Crude oil prices hit a ten-month low on June 21, 2017. Lower oil prices have a negative impact on oil and gas exploration and production companies. Oil producers Bill Barrett (BBG), Whiting Petroleum (WLL), and Carrizo Oil & Gas (CRZO) fell 12.4%, 9.3%, and 8.8%, respectively, on June 21, 2017. 

Major factors that are weighing on crude oil prices are:

  • There’s an expectation of slowing crude oil demand from Chinese refineries in 3Q17. China’s refinery capacity is expected to fall 10% in 3Q17. China is the second-largest crude oil consumer.
  • The IEA (International Energy Agency) estimated the rise in OECD crude oil inventories in April 2017 despite the production cut deal.
  • US crude oil production rose on June 9–16, 2017.
  • Libya’s crude oil production rose to a thee-year high.
  • Nigeria’s crude exports could rise by more than 2 million barrels per day in August 2017. It would be the highest level in the last 17 months.
  • Crude oil imports from Japan and India are slowing down.
  • Crude oil storage in tankers reached a high this year.

Traders are worried that the production cut deal won’t be able to remove surplus crude oil from the market. As a result, US crude oil futures broke below the key support level of $43 per barrel on June 21, 2017. Bearish fundamentals and moving averages suggest that prices could fall more. Prices could even hit $40 per barrel in the short term.

In the next part, we’ll look at US crude oil inventories.

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