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US Crude Oil Futures and the S&P 500 Diverged Last Week

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Crude oil futures  

January US crude oil (USL) (DWT) futures contracts rose 0.5% to $57.3 per barrel on December 15, 2017. The crude oil supply outage in Britain helped oil prices. The United States Oil Fund (USO) fell 0.3% to 11.46 on December 15, 2017. It’s the largest US crude oil futures tracking ETF.

However, US crude oil futures fell 0.1% last week. Prices fell for the third straight week. Prices fell due to record US crude oil production and a massive increase in gasoline inventories.

IEA’s monthly report 

US crude oil (DTO) (OIL) prices fell ~2.8% from their 30-month high. Record US production has been limiting the upside for oil prices. US crude oil production is close to major producers like Russia and Saudi Arabia.

The IEA (International Energy Agency) released its monthly oil market report on December 14, 2017. It estimated that a rise in US crude oil production would partially offset ongoing production cuts. It expects that US crude oil production will rise by 870,000 bpd (barrels per day) in 2018, which was 10% higher than its November estimates. It also expects global supplies to rise by 1,100,000 bpd in 2018, which would cause a surplus in the oil market and pressure oil prices.

Moves in oil (DBO) prices impact oil producers (PXI) (XLE) like Laredo Petroleum (LPI) and Baytex Energy (BTE). These stocks fell more than 5% on December 15, 2017.

Wall Street’s performance 

The NASDAQ (QQQ) rose 1.2% to 6,936.5, while the Dow Jones Industrial Average Index (DIA) rose 0.6% to 24,651.74 on December 15, 2017.

Similarly, the S&P 500 (SPY) (SPX-INDEX) rose 0.9% to 2,675.81 on December 15, 2017. All three indices closed at record highs. Renewed optimism due to the likelihood of a successful US tax cut boosted the US stock market. The bill is expected to reduce US corporate tax from 35% to 21%.

The S&P 500 rose 0.9% last week. The telecommunication (VOX) and IT (XLK) sectors supported SPY last week. However, the utilities (XLU) and materials (XLB) sectors limited the upside for SPY.

Series overview 

In this series, we’ll discuss the US dollar, Cushing inventories, US oil rigs, and key drivers for oil prices this week.

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