Is US Crude Oil above $50 Unavoidable?



US crude oil

On September 8–15, 2017, US crude oil (USO) (USL) (DBO) October futures rose 5.1%. On September 13, 2017, the IEA’s (International Energy Agency) released its report. The report could be a bullish catalyst for crude oil prices. In its recent estimate, the IEA expects global oil demand to rise by 1.6 MMbpd (million barrels per day) in 2017—compared to last year. The estimate is based on a rise by 2.3 MMbpd in the global oil demand in 2Q17—compared to the same period last year. The report also showed stagnant OECD commercial stocks in July 2017—compared to the previous month. Usually, it rises during this month. OECD product stocks were just 35 million barrels above the five-year average. The IEA expects the difference to enter negative territory because of Hurricane Harvey.

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On September 12, 2017, OPEC released its Monthly Oil Market report. The report showed a contraction in OECD commercial oil stocks in its member countries—expressed in days of forward cover in July compared to June 2017. These bullish catalysts could push US crude oil above the $50 mark. On September 15, 2017, US crude oil active futures closed at $49.89 per barrel.

The possible upward move in oil prices could be important for the S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA). Last week, these equity indexes rose 1.6% and 2.2%, respectively. We’ll discuss the connection between energy prices and these equity indexes in Part 2 of this series.

Natural gas

On September 8–15, 2017, natural gas (UNG) October futures rose 4.6% and closed at $3.02 per MMBtu (million British thermal units). However, after the U.S. Energy Information Administration’s inventory data were released on September 14, 2017, natural gas prices rose 0.4%. Natural gas inventories rose by 91 Bcf (billion cubic feet)—compared to the market’s expectation of 80 Bcf in the week ending September 8, 2017. However, natural gas prices could be reacting to the upcoming winter’s seasonal demand. This week, a milder weather forecast could make natural gas futures test the $3 mark.


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