US crude oil
From June 29 to July 6, US crude oil August futures fell 0.5%. On July 6, US crude oil August futures settled at $73.80 per barrel—just 0.5% below the highest closing level of $74.15 per barrel since November 24, 2014. In the last six trading sessions, US crude oil futures haven’t decisively closed below the $73.00 mark despite several bearish factors.
On July 7, CMA CGM, a France-based shipping company, ended its operations in Iran due to sanctions imposed by the United States. Other shipping giants such as A.P. Moller-Maersk also expect to stop their operations in Iran.
Thomson Reuters data estimates that Iran’s oil supply to Asia could drastically fall below 0.5 million barrels per day in November. In July so far, Asian refineries have imported ~1.5 million barrels per day of oil from Iran. These factors may increase oil’s undersupply fears—a factor that could support higher oil prices.
However, the Brent-WTI spread contracted by ~$1.80 to $3.30 in the week ended July 6. The contraction in the Brent-WTI spread could result from concerns surrounding Saudi Arabia’s rising oil production.
A report from Bloomberg estimates that Saudi Arabia’s oil production could hit a record high of 10.8 million barrels per day in July. Oil prices may stay higher in the near term. On the upside, $75.42 is expected to serve as an important level for oil bulls this week.
Any possible upside in oil prices could be a positive development for investors in oil-weighted stocks. WPX Energy (WPX), Diamondback Energy (FANG), and Concho Resources (CXO) rose 5.2%, 2.6%, and 2.2%, respectively, last week and were the outperformers among oil-weighted stocks.
From June 29 to July 6, natural gas August futures fell 2.3% and settled at $2.858 per million Btu (British thermal units) on July 6 due to oversupply concerns. Year-over-year, the US natural gas supply was 8.6 Bcf[1. billion cubic feet] per day higher in the last week.
Although the weather is forecast to be warmer than average in July, this may not be sufficient to ease natural gas’s oversupply concerns. This could cause weakness in natural gas–weighted stocks such as Chesapeake Energy (CHK) and Gulfport Energy (GPOR), which rose 1.0% and 5.3%, respectively, last week and avoided the decline in natural gas.