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Why Crude Oil’s Gains Could Be Capped

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WTI crude oil

On July 6, 2017, WTI (West Texas Intermediate) crude oil (DBO) (USO) August futures settled at $45.52 per barrel, 0.9% above their previous closing price. Crude oil prices rose because of a large fall in oil inventories. Based on the EIA (US Energy Information Administration) data released on July 6, 2017, US crude oil inventories fell by 6.3 MMbbls (million barrels) for the week ended June 30, 2017. For the same week, the API (American Petroleum Institute) had earlier reported a fall of 5.8 MMbbls, while analysts had expected a draw of 2.4 MMbbls. Last year, crude oil inventories fell by 2.2 MMbbls for the week ended on July 1, 2016.

However, the surge in US crude oil production might have capped oil’s gains. In the week ended June 30, 2017, US crude oil production rose by 88 thousand barrels per day, the second largest weekly gain in 2017 and the highest since the week ended January 13, 2017.

Oil and equity indexes

Between June 29 and July 6, 2017, US crude oil August futures rose 1.3%. In contrast to oil’s gains, the S&P 500 Index (SPY) and the S&P 400 Mid-Cap Index (IVOO) fell 0.4% and 0.8%, respectively, during this time period. However, the Dow Jones Industrial Average (DIA) rose 0.2% between these two periods. In the next part, we’ll try to explain the impact of oil prices on these equity indexes.

Natural gas

Natural gas (UNG) (BOIL) August futures fell 5.1% between June 29 and July 6, 2017. Mild weather was primarily responsible for a fall in natural gas during this period. However, on July 6, 2017, natural gas futures rebounded 1.7% and settled at 2.9 per million British thermal units. It was the first daily gain after four consecutive daily losses. On the same day, technical buying might have boosted natural gas prices. However, on July 7, 2017, inventory data could be the key to natural gas prices apart from the rig count report.

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