Friday, May 29, 2015

Lower Oil Prices Ahead?

On Thursday the EIA Petroleum Status Report shows a fourth week of oil inventory draw-down with a decline of 2.8 million barrels. Expectations were inventories would decline 857,000 barrels.

From The Blog of HORAN Capital Advisors

This decline occurred in spite of the continued increase in production as noted by the orange line in the below chart. Notable in the chart is the fact production continues to increase in spite of the sharp drop in rig count (blue line). The recent inventory draw-down may be due to seasonal factors as the busy summer travel season approaches as well as temporary production declines in sand fields in Canada.

From The Blog of HORAN Capital Advisors
A strengthening US Dollar places downward pressure on oil prices and the Dollar's recent weakness is likely a temporary one. The red line in the below chart shows the Trade Weighted Dollar has again started to strengthen; thus, one factor that will be a headwind for oil price increases. An earlier post, Interest Rate Policy To Impact The Dollar And Commodity Related Industries, discusses the relationship between the US Dollar and oil.

From The Blog of HORAN Capital Advisors

Looking ahead to the balance of the year, market factors are in place that seem likely to  push crude oil prices lower from their current level.

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