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Crude Oil Prices Rise on Expectations of a Fall in US Inventories

Gordon Kristopher

Are We Seeing the Rebirth of a Bull Market for Crude Oil?

Crude oil prices

WTI (West Texas Intermediate) crude oil futures contracts for July delivery rose by 1.1% and settled at $48.62 per barrel on May 24, 2016. Brent crude oil futures also rose by 0.54% to $48.61 per barrel.

Prices rose due to expectations of a fall in US crude oil inventories. Oil-tracking ETFs such as the United States Oil ETF (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose by 1.4% and 2.4%, respectively, on May 24.

API crude oil inventories

The American Petroleum Institute (or API) released its weekly crude oil inventory report on May 24, 2016. It estimated that US crude oil inventories fell by 5.1 MMbbls (million barrels) for the week ended May 20, 2016, compared to the previous week.

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Gasoline inventories rose by 3.6 MMbbls in the same period. In contrast, US distillate inventories fell by 2.9 MMbbls.

S&P 500

The US equity market rose on May 24, 2016. The SPDR S&P 500 ETF (SPY) also rose by 1.3% to $207.87 on the day. This bullish momentum supported crude oil prices.

Crude oil prices are trading close to their seven months highs. The rise in crude oil prices benefits oil producers such as Matador Resources (MTDR), Goodrich Petroleum (GDP), and Cobalt International Energy (CIE).

US Dollar Index

On May 24, 2016, the US Dollar Index appreciated against other major currencies due to expectations of an interest rate hike by the Federal Reserve in June 2016. The US dollar is inversely related to crude oil. The appreciating US dollar didn’t have much impact on crude oil prices on May 24.

Volatility of crude oil prices

WTI and Brent crude oil prices have risen by more than 80% since their lows in February 2016. However, they’ve still fallen by 55% compared to their 2014 highs.

The volatility in crude oil prices impacts ETFs such as the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the Direxion Daily Energy Bear 3x ETF (ERY), and the Fidelity MSCI Energy ETF (FENY).

Series focus

This series focuses on US crude oil inventories, supply and demand drivers of the crude oil market, and the crude oil price forecast.

Read the next part of the series for a look at the effects that US crude oil inventories have on crude oil prices.

Continue to Next Part

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