MK: Crude Oil Prices Fall to around $49 per Barrel: A 4-Month Low
Crude oil prices fall
This series analyzes crude oil and natural gas prices and fundamentals. For an in-depth fundamental look at oil and gas and related companies, sectors, and drivers, please refer to our Energy and Power page.
NYMEX-traded September WTI (West Texas Intermediate) crude oil futures contracts fell by 2.32% and settled at $49.19 per barrel on July 22, 2015. Prices hit a four-month low due to rising crude oil inventory and the appreciating US dollar. WTI tracking ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also fell in yesterday’s trade. These ETFs fell by 3.37% and 6.87%, respectively, at the close of trade on Wednesday, July 22, 2015.
Yesterday, the EIA (U.S. Energy Information Administration) reported that crude oil inventories rose by 2.5 MMbbls (million barrels) for the week ending July 17, 2015. The market consensus estimated a fall in the crude oil inventory by 2.3 MMbbls. The worse-than-expected inventory rise led to the fall in crude oil prices in yesterday’s trade.
The US dollar appreciated against the global currencies. The strengthening of the US dollar makes dollar-denominated crude oil expensive for oil importing nations in their domestic currencies. This negatively impacts crude oil prices.
This is the fifth down day for WTI prices over the last ten days. During the same period, prices fell by 0.55% more on the average down days than on the average up days. September WTI futures performed the worst across all of the other commodities in yesterday’s trade. Prices fell more than 7% YTD (year-to-date)—led by record US inventories and oversupply concerns.
The recent slump in crude oil prices negatively affects US oil producers like Anadarko Petroleum (APC), ExxonMobil (XOM), and Chevron (CVX). Combined, they account for 32.16% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is greater than 53% of their total production.
On Wednesday, July 22, 2015, the EIA (U.S. Energy Information Administration) released its weekly crude oil inventory report. The data showed that crude oil stocks rose by 2.5 MMbbls (million barrels) to 463.9 MMbbls for the week ending July 17, 2015. Last week, crude oil inventories fell by 4.3 MMbbls to 461.4 MMbbls for the week ending July 10, 2015.
On July 21, 2015, the API (American Petroleum Institute) reported that crude oil inventories rose by 2.3 MMbbls for the week ending July 17. In contrast, market surveys projected that the oil stockpile would fall by 2.2 MMbbls over the same period. The worse-than-expected inventory rise led to the fall in crude oil prices.
A rise in crude oil inventories negatively impacts crude oil prices. As a result, this impacts crude oil producers like Newfield Exploration (NFX), Hess (HESS), and Apache (APA). They also benefit from higher crude oil prices. Combined, they account for 3.40% of the Energy Select Sector SPDR ETF (XLE). The falling crude oil prices impact ETFs like XLE and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
The rise or fall in the inventory measures the balance in supply or demand. Rising inventory implies that supply is rising or demand is falling. The rising crude oil inventory was due to the rise in crude oil imports. US crude oil imports rose by 587,000 bpd (barrels per day) to 7.9 MMbpd (million barrels per day) for the week ending July 17, 2015. Monthly crude oil imports averaged around 7.5 MMbpd over the same period. This is 2.50% above the levels last year.
The refinery demand also rose by 45,000 bpd to 16.9 MMbpd for the week ending July 17, 2015. The refinery utilization was at 95.50% for the same period. Oil inventories rose despite rising refinery demand.
The EIA also added that gasoline inventories fell by 1.7 MMbbls and distillate stocks rose by 0.2 MMbbls for the week ending July 17, 2015. Gasoline output rose. It was averaging over 10.1 MMBpd during the same period. In contrast, distillate fuel output fell and averaged around 5.1 MMbpd for the week ending July 17, 2015.
The rise in inventories isn’t just impacting crude oil prices. The massive production from the Middle East is also adding pressure to crude oil prices.
