US crude oil this week
On Thursday, Brent crude oil active futures fell 3.6%. On the same day, US markets were closed due to the Independence Day holiday. Since the production cut meeting, US crude oil prices have lost ~3.9% as of 2:15 AM ET today. The market expected a higher output cut. Concerns about a slowdown are having a negative impact on oil prices.
On Wednesday, the EIA reported a decline of 1.1 MMbbls (million barrels) in oil inventories compared to a Reuters poll for a fall of 3 MMbbls. Gasoline inventories fell by 1.58 MMbbls. The fall in oil and gasoline inventories might have supported oil prices.
Troubles rising for Iran
On Thursday, the United Kingdom seized an Iranian oil tanker, which could curtail Iran’s ability to sell its oil and impact its relations with the West. After the US sanctions, Iran’s oil exports were at or below 0.3 MMbpd (million barrels per day) in June. Any escalation between the US and Iran could support oil prices.
On Wednesday, US crude oil’s implied volatility was 31.8%—16% below its 15-day average. The lower implied volatility might support oil prices. Since reaching a 12-year low in February 2016, US crude oil active futures have risen ~118.7%. Crude oil’s implied volatility has fallen ~57.7% since February 11, 2016.
Until July 11, US crude oil futures should close between $55.21 and $59.47 per barrel 68.0% of the time. The forecast is based on crude oil’s implied volatility of 31.8% and assumes a normal distribution of prices. On July 3, US crude oil August futures rose 1.9% and settled at $57.34 per barrel.
These price limits could be important for oil-tracking ETFs like the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the United States 12-Month Oil ETF (USL). If US crude oil rises above $60, it might please investors in these ETFs. In the trailing week, US crude oil active futures fell 3.4%, the ProShares Ultra Bloomberg Crude Oil ETF fell 8.3%, and the United States 12-Month Oil ETF fell 3.2%. These price limits also impact the S&P 500 Index (SPY). Energy stocks account for 5.2% of the S&P 500 Index.
Next week will be eventful
Next week, the U.S. Energy Information Administration is scheduled to release its oil and natural gas inventory data on July 10–11. The data could be a short-term driver for oil and natural gas prices. On July 12, the International Energy Agency will release its Oil Market Report. Any change in the oil demand growth forecast will impact oil prices. OPEC’s Monthly Oil Market report on July 11 will be important for oil prices.