Futures in New York rose as much as 0.6 percent after adding 2.5 percent in the past three sessions. An industry report showed U.S. inventories fell last week, with government data Wednesday forecast to show a fourth straight drop. Crude’s recent gains have been driven by fighting between the Iraqi government and Kurdish forces in the oil-rich Kirkuk region, which could stoke tensions beyond the country’s borders. Iraq is just one of the oil market’s geopolitical risks, with uncertainty also growing over tensions between Iran and the U.S., Goldman Sachs Group Inc. said Tuesday. The Persian Gulf nation said it would support an extension of OPEC output cuts to the end of 2018 and insisted its production plans won’t be disrupted by U.S. President Donald Trump’s disavowal of the nuclear deal that’s boosted its exports. Click Read More below for additional information.
The US benchmark WTI (West Texas Intermediate) crude oil futures contracts for December delivery fell by 2.9% and settled at $44.29 per barrel on November 11, 2015. Prices hit lows seen in August due to estimates of rising inventory in the oversupplied market. ETFs like the United States Oil ETF (USO) and the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) moved in the direction of WTI oil prices in yesterday’s trade. These ETFs fell by 2.3% and 4.8%, respectively, on November 11, 2015.
On November 10, 2015, the API (American Petroleum Institute) reported that crude oil stocks rose by 6.3 MMbbls (million barrels) for the week ending November 6, 2015. Market surveys from Bloomberg project that crude oils stocks could rise by 1.3 MMbbls for the same period. The consensus of rising crude oil stocks is putting pressure on crude oil prices. To learn more about the inventory updates, visit the next part of the series.
The latest surveys suggest that about 100 MMbbls of crude oil and heavy fuels are stored in large crude oil tankers at sea. The storage hubs in the US and China are at record levels. The storage tanks at the ports are almost full due to long-term oversupply concerns. As a result, many of the oil tankers are at sea. The substantial amount of oil benefits oil tankers like Teekay Tankers (TNK), Nordic American Tanker (NAT), and Frontline (FRO) because they carry and store oil at sea. Record inventories at sea and on land will also add to the oil glut market.
Russia is the world’s largest independent crude oil exporter. The catastrophic fall in crude oil prices led to the devaluation of the Russian rubble. The Russian government devalued the currency to offset the lower crude oil prices. The correlation between the Russian ruble and crude oil prices is the highest among the oil exporting countries. The correlation peaked at 0.88 on October 6, 2015. A correlation of one means that oil and the rubble are at lockstep. On November 11, 2015, the oil and rubble correlation was at 0.67. It signifies that Russia will continue to produce more crude oil to offset lower crude oil prices in the oversupplied market. However, the uncertainty in the oil market impacts ETFs like the iShares Global Energy ETF (IXC) and the PowerShares DWA Energy Momentum ETF (PXI).