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Oil Heading for Flat Weekly Close

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Oil and energy stocks diverging

On May 9, US crude oil June futures fell 0.7% and settled at $61.7 per barrel. A 0.3% fall in the S&P 500 Index (SPY) might be behind the fall in oil prices. In the trailing week, US crude oil active futures fell 0.2%. However, our list of oil-weighted stocks on average rose 3.9%. Earnings expectations around energy stocks might be behind the divergence. In fact, Callon Petroleum (CPE) and Carrizo Oil & Gas (CRZO) rose 15.1% and 10.1% and were the outperformers among oil-weighted stocks.

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Oil heading for flat weekly close

At 6:05 AM EST on May 10, US crude oil active futures were at $61.94, which was on par with their previous week’s closing level. However, today, US president Donald Trump increased tariffs to 25% on $200 billion worth of Chinese imports. China vows to reciprocate against the US’s action of raising tariffs. The trade war between the US and China might bring a new normalization of increasing tariffs around the world if the negotiations don’t succeed.

OPEC supply cuts and the US’s stricter sanctions on Iran and Venezuela have limited the downside in oil prices. But, the trade war will likely hamper global consumer demand and particularly reduce the growth rate in oil’s demand. In fact, US crude oil prices might move sideways until the OPEC and non-OPEC member meeting on June 26, which is expected to make global oil producers’ stance clear in regards to extending production cuts into the second half of this year.

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