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Is the Worst Over for Crude Oil Futures?


Nov. 20 2020, Updated 12:12 p.m. ET

US crude oil futures 

September US crude oil (XLE) (XOP) (USO) futures contracts rose 1.0% to $50.17 per barrel on July 31, 2017. Brent crude oil futures rose 0.30% to $52.65 per barrel that same day.

US crude oil futures rose 10.0% since July 24, 2017, due to the following factors:

  • There was an expectation of US sanctions over Venezuelan oil assets, which could hamper crude oil production activity. Oil is Venezuela’s prime source of income.
  • There was short-covering as well as technical buying.
  • Saudi Arabia is OPEC’s (Organization of the Petroleum Exporting Countries) largest producer and exporter. There’s an expectation of a fall in crude oil production from Saudi Arabia in August 2017.
  • There’s an expectation of higher compliance with the production cut deal in the second half of 2017. It might remove the excess oil from the market.
  • US crude oil inventories have fallen 10.0% since the peak in March 2017.
  • The US dollar (UUP) is near a 13-month low.
  • There’s an expectation of slowing US crude oil drilling activity. US crude oil rigs rose by ten in July 2017. It’s the lowest monthly addition since March 2016.
  • There was a supply outage at Royal Dutch Shell’s (RDS.A) refinery in the Netherlands. It could hamper production by 404,000 bpd (barrels per day). It supported European diesel futures.
  • Bullish momentum in the S&P 500 Index (SPY) (SPX-INDEX) supports energy demand and prices.

Crude oil prices are at a two-month high. Higher crude oil prices have a positive impact on oil and gas producers such as ConocoPhillips (COP), Stone Energy (SGY), and Denbury Resources (DNR). However, crude oil prices have fallen 12.0% year-to-date due to bearish drivers.

Crude oil prices could feel the heat due to the rise in OPEC’s crude oil production in July 2017. We’ll look at that in more detail in the next part of this series. The rise in US crude oil and products exports in 2017 could also weigh on oil (RYE) (VDE) (UCO) prices.

In the rest of this series, we’ll take a close look at crude oil price drivers.

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