Scalper1 News
The long beleaguered oil industry could not have asked for a better Christmas Eve. A miserable year thanks to huge supply and falling demand has ended up in around a 50% fall in oil investments so far this year. Prices have plunged from over $110 a barrel seen in early 2014 to below $40 level now. But Santa Clause must have lugged surprise gifts for the oil sector as the price of this liquid commodity started to ascend prior to Christmas. The reason behind this jump was The American Petroleum Institute’s recent report (on December 22) which said the U.S. crude oil inventories declined 3.6 million barrels in the most recent week. If this was not enough, the very next day, the U.S. Energy Department indicated a decline of 5.9 million barrels in the week ended December 18. Analysts’ had predicted 1.1 million barrels of jump. U.S. crude oil inventories, which are now around 484.8 million barrels, have never seen such a Christmas Eve in the last 80 years. Gasoline and Distillate fuel output also fell last week, as per Energy Information Administration. The news brought a fresh lease of life to the oil sector, and why not? The space was shaken by the OPEC top brass Saudi Arabia and other Gulf countries’ decision of ‘no product cut’ even after the global supply glut, fast falling demand on global growth issues, rising greenback on the Fed lift-off and mounting U.S. crude stockpiles over the last few weeks. ETF Impact Following the news of the inventory drawdown, oil futures started to rise. In fact, oil pulled up the entire stock market in the last two days after Fed-related woes upset it a few days back. The United States Oil ETF (NYSEARCA: USO ) – which looks to track the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma – gained over 5.6% in the last two days (as of December 23, 2015). The Path S&P Crude Oil Total Return Index ETN (NYSEARCA: OIL ) – which reflects the returns that are potentially available through an investment in the WTI crude oil futures – added about 7.1% in the last two days (as of December 23, 2015). The United States Brent Oil ETF (NYSEARCA: BNO ) – which looks to track the daily changes in percentage terms of the spot price of Brent crude oil – advanced about 4.4% in the last two days (as of December 23, 2015). The PowerShares DB Oil ETF (NYSEARCA: DBO ) – which consists of futures contracts on WTI crude and is intended to reflect the performance of crude oil – returned about 5.6% in the last two days (as of December 23, 2015). Needless to say, energy stocks will also be big-time beneficiaries of this uptrend in oil. The energy sector ETF, the Energy Select Sector SPDR ETF (NYSEARCA: XLE ) returned about 5.6% in the last two days (as of December 23, 2015). The First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA: FCG ) – which identifies and selects stocks that are involved in the exploration and production of natural gas – rose about 12% in the last two days (as of December 23, 2015). Bottom Line Having said that, we would like to note that oil price does not have any solid prospect in the near term. As per OPEC, oil will take four more years to return to the $70 a barrel level. Moreover, the International Energy Agency (IEA) noted that surplus supplies in the global oil market will remain in 2016 as demand growth has dropped from a five-year high level . Also, the likely joining of another player Iran in the global oil production arena – if international sanctions are lifted – will likely keep the market flooded with oil, per IEA. So, investors expecting a Santa Rally in the oil field should take a cautious approach. After all, the recent spike in oil prices looks temporary and the liquid commodity might succumb to a slowdown any time soon. Original Post Scalper1 News
Scalper1 News