US Crude Oil Heading for Highest Weekly Loss in 2019

Oil dragged energy stocks lower

On May 16, US crude oil June futures fell 5.7% and settled at $57.91 per barrel—the biggest daily decline for active US crude oil futures since December 24. A 1.2% fall in the S&P 500 Index (SPY) due to rising trade war tensions might have made oil prices fall sharper. In the trailing week, US crude oil active futures fell 8.2%. On average, our list of oil-weighted stocks fell 11.8%. California Resources (CRC) and Whiting Petroleum (WLL) fell 23.9% and 21.3%. They were the underperformers among oil-weighted stocks.

US Crude Oil Heading for Highest Weekly Loss in 2019

Highest weekly loss in 2019

At 6:48 AM EST on May 24, US crude oil active futures were at $58.52, which is ~6.7% below the closing level the previous week. If US crude oil prices remain at those levels on May 24, then it would be the highest weekly decline for US crude oil futures since the week ending December 21.

A favorable ‘long position’ for oil bulls

On May 23, the IEA (International Energy Agency) slashes its oil demand growth estimate for the first quarter by 400 Mbpd (thousand barrels per day). The IEA reduced the demand growth forecast for the next three quarters by 100 Mbpd—the most important reason for the fall in oil prices on May 23.

However, the IEA also expects Iran’s oil production to fall to the lowest level since 1980 due to US sanctions. The Indian ambassador to the US confirmed that India has ended all of its oil imports from Iran. In 2017, India consumed ~18% of Iran’s total crude oil and condensate exports. The fall in the Iranian oil business will increase the market share for other oil exporting countries—specifically Saudi Arabia. OPEC might use its spare capacity without lifting its oil production to replace Iranian oil, which might turn the current decline in oil prices into a favorable ‘long position’ for oil bulls.