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How Crude Oil Could Affect the Auto Industry’s 1Q18 Earnings

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Recent oil price movement

As of February 27, WTI (West Texas Intermediate) crude oil futures are trading at $63.01 per barrel. With this, the oil prices have witnessed minor gains of about 4.3% in 2018 so far. However, prices have fallen 2.6% on a month-to-date basis.

In January 2018, WTI crude oil futures were trading at their highest level since December 2014. However, a sharp fall was seen in crude oil prices in February due to excess global inventories.

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Key technical levels

Currently, technical indicators are suggesting a mixed bias in the underlying momentum for crude oil prices. On the upside, a key resistance lies near $66.30, and only a violation of this could confirm short- to medium-term bullishness in oil prices.

On the downside, WTI crude oil prices could find a minor horizontal support near the $53.50 level. On February 28, the EIA (Energy Information Administration) released crude oil inventory data. Inventories rose 3.0 MMbbls (million barrels), which could be another reason for the recent weakness in oil prices.

Possible impact on truck sales

In the last three years, the auto industry has witnessed a sharp rise in the US demand for utility vehicles and pickup trucks. In 2017, US truck sales rose 4.4%, while US small car sales fell 10.9%. Clearly, the sales growth of these heavyweight vehicles outperformed the sales growth of the lightweight car segment.

Low oil prices have been one of the key drivers behind this sales trend. In general, pickup trucks and utility vehicles tend to yield higher profit margins for automakers than small cars. This is the reason why higher demand for trucks and utility vehicles improves the profitability of automakers (VCR) including Ford (F), General Motors (GM), Fiat Chrysler (FCAU), and Toyota (TM).

Please visit Market Realist’s Autos page for news and updates on the auto industry.

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