Oil’s fundamentals, broader market dragged on prices
On May 28, US crude oil prices rose 0.9% and settled at $59.14 per barrel, ~10.8% below the highest closing level for active US crude oil futures since October 31, 2018. In the trailing week, US crude oil active futures fell 6.3%.
Last week, the rise in inventories initially dragged on oil prices. Moreover, the fall intensified, with the International Energy Agency reducing its demand growth forecast for 2019. This week, EIA (U.S. Energy Information Administration) inventory data could dismay oil bulls. Apart from oil’s fundamentals, the S&P 500 Index (SPY), which fell 2.2% between May 21 and 28, is another factor driving the fall in oil prices. Weakness in the S&P 500 Index as a result of trade war concerns is a bearish development for a growth-driven asset such as oil.
Will oil’s weakness continue into June?
Since 2000, most of the time, US crude oil prices have closed higher in June than in April. Moreover, for the last 19 years, seasonality patterns have also supported oil’s closing higher, on average, in June than in April. This price pattern coincides with higher oil demand in the United States because of the summer driving season between April and September. Moreover, based on the EIA’s Short-Term Energy Outlook Report, which it released on May 7, US retail gas prices in the 2019 summer driving season will average ~2.5% higher than last year, a factor that could support oil in June.
However, the meeting between OPEC and its allies on June 26 will be the most important factor for oil prices. Oil prices trended higher in 2019 because of OPEC’s cuts. Next month, oil’s implied volatility may also rise.
On May 28, US crude oil prices were 4.5%, 4.8%, and 2.1% below their 20-day, 50-day, and 200-day moving averages, respectively. On the same day, US crude oil prices were 1.9% higher than their 100-day moving average. This level will be important to watch on May 30, after the EIA inventory data for the week that ended on May 24 are released.