US crude oil

On April 27–May 4, US crude oil June futures rose 2.4%. On May 4, US crude oil June futures settled at $69.72 per barrel—the highest closing level for US crude oil active futures since November 26, 2014. However, the US dollar rose 1.1% last week—a negative development for oil prices. The PowerShares DB US Dollar Bullish ETF (UUP), which tracks the US dollar, rose 1.2% during this period.

What’s Happening in the Oil Market?

The iShares S&P GSCI Commodity-Indexed Trust (GSG) rose 1.4% in the week ending May 4. GSG has exposure of ~63.5% to the energy sector. The rise in oil prices might have helped GSG overcome the stronger US dollar.

Is US crude oil outperforming Brent crude oil?

Last week, Brent crude oil July futures rose 1.5%—90 basis points less than the rise in US crude oil futures. The United States Brent Oil Fund (BNO), which tracks Brent crude oil futures, rose 1.9% during the same period. In the week ending May 4, the Brent-WTI spread contracted by $0.54 per barrel.

The possible exit of the US from the 2015 Iran nuclear deal could already have been priced into Brent crude oil prices. As the Brent-WTI spread expanded to a four-month high of $5.68 in the week ending April 20, US oil exports hit a record high. The news could also have caused WTI to rise and Brent to fall as oil is taken away from the US market, which is represented by the WTI benchmark, and released into the international market, which is represented by the Brent benchmark.

In the week ending May 4, futures for oil-derived gasoline fell 0.7%, while heating oil futures rose 0.9%. So, gasoline and heating oil futures underperformed US crude oil and Brent crude oil futures. The Direxion Daily Natural Gas Related Bull 3X Shares (GASL) fell 2.6% during this period.

Supply constraint in the US

In the week ending April 27, US crude oil’s weekly production rose to ~10.62 million barrels per day—record levels based on the EIA’s data released on May 2.

On May 2, the spot differential between WTI (West Texas Intermediate) at Cushing versus Midland expanded to $9.5—the highest since September 23, 2014. On May 4, the spot differential between WTI at Cushing versus Midland expanded to $13—the highest since August 19, 2014. The rise in the spot differential indicates constraints in the US oil pipeline capacity.

Natural gas

On April 27–May 4, natural gas June futures fell 2.2% and settled at $2.71 per million British thermal units on May 4. In the week ending on May 4, the United States Natural Gas (UNG) fell 2%. The EIA’s inventory data could be behind natural gas’s downturn.

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