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What Made Oil Weak Last Week

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Aug. 14 2017, Published 3:08 p.m. ET

US crude oil 

Between August 4 and 11, 2017, US crude oil (USO)(DBO) September futures fell 1.5% and closed at $48.82 per barrel on August 11.

In the week ended August 4, 2017, oil inventories declined by 6.5 MMbbls (million barrels). However, US crude oil production near a two-year high could be a hurdle for oil prices. The EIA reported oil inventory and production data on August 9.

Rising US crude oil production could offset any decline in oil output from OPEC’s members. Moreover, in July 2017, OPEC oil output was at ~32.87 million barrels per day above the pledged output limit of 32.5 million barrels per day. These factors were responsible for the fall in oil (USL)(OIIL) prices.

Moreover, the US crude oil rig count rose to 768 in the last week—three more compared to the week before. Rising rigs could pose a potential threat to oil prices.

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Natural gas

In the seven calendar days up to August 11, natural gas (UNG) September futures rose 7.5%. In the week ended August 4, natural gas inventories rose by 28 Bcf (billion cubic feet)—10 Bcf fewer than the market expectations. They buoyed natural gas prices. The EIA reported this data on August 10.

Moreover, if the difference between natural gas inventories and the five-year average (inventories spread) contracts, it could boost natural gas prices. Based on the latest data, the difference is now only at 2% compared to 3% a week ago.

Apart from the above development, the natural gas rig count fell by eight to 181 in the week ended August 11, 2017. But the gain in oil rig count could cap natural gas’s gains.

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