OIL - /CL - USO - Futures & Oil ETFs

United States Oil Fund LP
Financial | Exchange Traded Fund | USA​

The investment seeks the daily changes in percentage terms of its shares' per share net asset value (NAV) to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the price of a specified short-term futures contract on light, sweet crude oil called the Benchmark Oil Futures Contract, less USO's expenses. USO seeks to achieve its investment objective by investing primarily in futures contracts for light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels.

 

oil has been on a nice run since hitting the $42 low in mid june ... but now coming up on this daily TL resistance ... will it plow through or back down she goes? seems like oil always has trouble around that $50 handle level ... hasn't been able to sustain a move over $50 for very long

 

Largest 5-Week Decline in Crude Oil Inventories in Over Three Years
Aug 9, 2017

Crude oil inventories dropped more than expected this week, posting the sixth straight weekly decline and the 16th weekly decline in the last 18 weeks. According to the DoE, weekly inventories declined by 6.45 million barrels in the latest week compared to estimates for a decline of just 2.2 million barrels. Over the last five weeks now, crude oil inventories have declined by 27.5 million barrels, which is the largest five-week decline since the beginning of 2014. At current levels, crude oil stockpiles in the United States remain well above their historical averages of the last five years and going all the way back to 1983. In fact, relative to averages since 1983, crude oil stockpiles are more than 165 million barrels (40%) above average.

At current levels, crude oil stockpiles in the United States remain well above their historical averages of the last five years and going all the way back to 1983. In fact, relative to averages since 1983, crude oil stockpiles are more than 165 million barrels (40%) above average. What is notable about the recent decline in stockpiles is that following the last several weeks of declines, crude oil inventories are now below where they were at this time last year, and at the very least that’s a moral victory.



While oil inventories saw a much larger than expected decline this week, gasoline stockpiles unexpectedly increased. As shown in the chart below, gasoline inventories increased by 3.4 million barrels this week compared to estimates for a decline of 1.5 million barrels. With that increase, inventory levels are just below their levels from the same time last year, but still well above the historical average going back to 1990.



Gas Prices Rising as Summer Driving Season Winds Down
Aug 9, 2017

Labor Day is now less than a month away and with many schools around the country starting back to school in the next couple of weeks, the Summer driving season is starting to wind down. With that in mind, we wanted to take a look at where gas prices currently stand as well as how those prices compare to prior years. According to AAA, the current national average price of a gallon of gas is $2.36 per gallon. While that is up considerably from this point last year, there have only been two years (including 2016) where gas prices were lower at this time of year than they are now. The only other year was 2005 when the national average price was two cents less at $2.34. As shown in the left table below, with a YTD increase of 1.0%, there hasn’t been a single year since 2005 where prices saw a smaller YTD gain through August 8th.

The chart below to the right compares the performance of gas prices so far this year to a composite of its performance in all years since 2005. The pattern for gas prices so far in 2016 looks nothing like the ‘typical’ pattern that we have seen in prior years. Whereas prices are typically up over 20% YTD at this time of year, this year they are barely breaking even. The main reason for this year’s shortfall is that prices never saw the seasonal increase in the Spring that is typical. Looking ahead, prices typically decline sharply after Labor Day, but since prices never ran up in the Spring, perhaps they won’t see the typical decline in the fall. Regardless of what happens going forward, the fact that prices have essentially seen no gains YTD has created a small windfall for consumers.



Finally, the chart below shows the y/y change in average gasoline prices going back to 2006. With an 11% y/y gain relative to this time last year, the rate of change is positive which is a change from most other periods in the last two to three years, but it is well off the rapid pace of increase we saw earlier this year when the y/y changes were working off of a very low base from the 2016 lows.

 

Impact of Hurricane Harvey on Oil and Gasoline
Posted by lplresearch

Over the past several days, thousands of people have been displaced since Hurricane Harvey made its initial landfall in eastern Texas. The images shown documenting its impact, especially in the areas hit with the heaviest devastation, have been saddening to say the very least. As the storm continues to run its course, our thoughts are continually with everyone who has been and may be impacted.

While a much lessor concern, the Hurricane’s economic impact is getting particular attention given not only the size and scope of the storm, but the fact that the area most impacted is among the largest oil production and refining regions in the world. Though we tend to think about the region in terms of “energy,” the term actually encompasses two very different, yet related industries, oil and gas production, and refining which transforms crude oil into usable products like gasoline and diesel.

Normally, severe weather in the Gulf is accompanied by rising oil prices, but prices have actually been falling in the past few days. Why is that? Thus far, Hurricane Harvey has had a greater impact on oil refining than it has had on production. Much of the U.S.’ refining operations are concentrated in coastal Texas and Louisiana. In fact, Texas refines the most oil of any state averaging about 5.5 million barrels/day, which is equivalent to about 30% of the nation’s refining capacity. Currently, nearly one-half of this capacity (over 14% of national oil refining) is offline, a figure likely to rise by the time Hurricane Harvey has left the area. Louisiana processes almost 3.4 million barrels/day, which accounts for 18% of the nation’s refining. At this point, there have not been any reports of refineries in Louisiana shutting down, though it would be reasonable to expect there may be shutdowns as the storm moves east.

As refineries have been shut down (due to damage, the inability for workers to reach them, or the inability to get gasoline out of them) a lack of demand for oil has been created. In turn, this has increased the amount of oil in storage waiting to be refined, thereby depressing prices. On the other side, refiners’ inability to produce and distribute gasoline and other refined products is weighing on supply and driving those prices higher. The chart below shows the difference between the price of oil and the price of gas, which generally tend to move together, but at times–and especially now–have diverged considerably, and the impact of refinery shutdowns on the price of gasoline.



Per Matthew Peterson, Chief Wealth Strategist, “We have already seen the impact on the price of gasoline on a national level. However, gasoline can be a very localized market where not all are impacted, and certainly not to the same extent.” Peterson added, “Until Harvey has moved on, and refineries release more data regarding shutdowns and how long it will take them to restart operations, we would expect higher prices at the pump in most places–which likely means more volatility in the crude oil market.”

Gas Price Impact From Harvey
Aug 30, 2017

While it’s nothing compared to what people in Texas and the Gulf Coast are going through, if you plan on traveling this coming Labor Day weekend, you can expect to pay up given Harvey’s impact on the nation’s energy infrastructure. As shown in the chart, the national price of a gallon of gas has increased by 3% in the last week to $2.40 per gallon and near its highest levels of the year.



While the increase in the chart above looks dramatic, prices this year have been subdued relative to other years. The table to the lower left shows the YTD change of the national average price of gasoline by year going back to 2005. Even after the recent increase, prices at the pump are up just 2.9% this year compared to an average increase of 20.2%. For each individual year since 2005, the only one that saw a smaller YTD increase at this point in the year was 2010. The lower right chart compares the daily change in gasoline prices this year (same chart as above) to a composite of the average YTD price change by day going back to 2005. While prices have recently rallied due to the hurricane, we are just about to enter the time of year where prices begin their seasonal descent. If that pattern holds this year, don’t be surprised to see average gas prices decline in 2017. If that were to happen, it would be the third annual decline in the last four years!



Even with the recent uptick in gasoline prices, consumers won’t be paying much more at the pump this Labor Day weekend than they did last year. As shown in the chart, prices this year are up 8.4% year/year, which is a relatively big increase compared to recent history, but from a longer term perspective, isn’t that far from the norm.

 

End of summer driving could signal trouble ahead for crude oil

Seasonally speaking, crude oil tends to make significant price gains in the summer, as vacationers and the annual trek of students returning to college in August creates increased demand for unleaded gasoline. The market can also price in a premium for supply disruptions due to threats of hurricanes in the Gulf of Mexico. However, towards mid-September, we often see a seasonal tendency for prices to peak out, as the driving and hurricane seasons begin to wind down. Crude oil’s seasonal decline is highlighted in yellow in the above chart.

Shorting the February crude oil futures contract in mid-September and holding until on or about December 10 has produced 22 winning trades in the last 34 years. This gives the trade a 64.7% success rate and theoretical total gains of $101,920 per futures contract. Following three consecutive years of losses, this trade has been successful in four of the last five years.

It has been over three years since crude last traded above $100 per barrel. Ample supply and inventories have largely keep price under $50 per barrel ever since. Even hurricane Harvey had just a modest impact on crude’s price. Gasoline did spike, but crude did not. Crude’s failure to respond suggests it next move could easily be lower especially as summer driving season demand begins to fade.

 

Will Oil’s Bullish Momentum Continue?

Crude oil (WTI) increased approximately 18.7% off its June 21, 2017 bottom (price as of September 22, 2017) and is now testing resistance at its $50/barrel (bbl.) level. Today we assess a few technical analysis factors that we are monitoring to measure the likelihood of oil continuing to move higher over the next 3–12 months.

Since bottoming on June 21, the price of oil has closed back above both its 50- and 200-day moving averages (DMA), and its daily chart is starting to form what technicians describe as a potentially bullish measured move price pattern*. The measured move is likely to execute into its second leg higher if the spot price (on a closing basis) can remain above its $50/bbl. resistance level for at least five trading days. In this scenario, there is an increased likelihood that oil’s momentum may continue and the price may move higher.

*A measured move chart pattern resembles the form of a lightning bolt and is comprised of three legs; two legs which are at the top and bottom of the lightning bolt tend to be parallel to each other, moving closely in magnitude and direction; and one leg which is in the middle of the bolt tends to move in the opposite direction to the other two. A measured move chart pattern may be helpful in assessing the future price direction of an index or security.



Oil’s recent move back above its 200-DMA, coupled with the fact that the short-term trend (depicted by the 50-DMA) is sloping upward, increases our level of conviction that a measured move chart pattern will execute.

Looking at historical WTI price data going back to 1984, there were 28 instances when the price closed back above its 200-DMA while the 50-DMA was upward sloping. Subsequent price returns tended to be bullish over the next 3–12 months.



Will oil breakout through its key resistance level at $50/ bbl.? There is certainly no guarantee; however, with the recent price closing back above its 200-DMA, there is an increased likelihood that oil’s price continues higher, which may be the catalyst needed to execute the second leg of a measured move and continue its bullish momentum.

 

Crude’s Worst Four Months: October to January

Based upon crude oil prices (near-term contract) since 1984, November is the worst performing month, down 21 times in 33 years with an average loss of 2.9%. October is nearly just as bad, down 20 times with an average decline of 2.4%. December and January are also losers on average, both down 16 times. These four consecutive months are crude oil’s “Worst Months.” The decline in price is usually the result of a decline in demand as the summer driving season has ended and a decline in demand from refineries that have already build up inventories of heating oil in preparation for winter.

 

Energy Stocks Have a Long Way to Go
Thu, Jun 10, 2021

The S&P 500 Energy sector is by far the best performing sector year-to-date with a gain of 45.2% through yesterday. As shown below, Energy is outperforming the S&P 500 by roughly 33 percentage points so far in 2021.



Given its huge outperformance so far this year, it's pretty remarkable that Energy is still lagging the S&P 500 over the last 12 months. As shown below, Energy is only up 22.8% year-over-year versus the S&P 500's gain of 31.6%.



And longer-term, Energy's performance on an absolute basis and relative to the S&P 500 remains horrible. Over the last 5 years, the Energy sector is down 18.7% versus the S&P 500's gain of 99.5%.



Over the last 10 years, Energy is down 24.9% versus the S&P 500's gain of 227.4%!



It's not until we go back 20 years that Energy gets back into the green. Since June 2001, Energy is up 69.4% while the S&P 500 is up 233.6%.

Energy has finally experienced some outperformance versus the broad market in 2021, but its 45% gain year-to-date hardly makes up any ground when looking at the sector's performance in the 2010s. The sector still has a LOT of catching up to do.

 

High Octane Crude
Wed, Jun 16, 2021

Besides the fact that crude oil is back above $70, what's even more impressive is how it has gotten there. In the process of breaking out above its February highs a couple of weeks back, the intraday high in WTI has been higher than the prior day's intraday high for 14 straight trading days.



That type of persistent intraday bid in crude oil has been unprecedented. Going back to 1983, the current streak ranks as the longest on record surpassing the prior record of 12 trading days that was reached in both 2003 and then again in 2011. In the near 40 years since 1983, there have only been six other periods where WTI even saw a streak of ten trading days where its intraday high was higher than the day before.

 

Crude and Natural Gas Break Out
Tue, Oct 5, 2021

In an earlier post, we noted the long-term breakout of cotton futures in the context of what has been a historic short-term run. Elsewhere in the commodities space, there are other breakouts occurring today. As shown in the first chart below, crude oil took out its July intraday high of $76.98 yesterday and it has continued to move above those levels today. While crude oil is now within one dollar of $80, natural gas is also hitting a new high as the commodity continues to surge on supply concerns as we discussed in today's Morning Lineup.



As both commodities rapidly trend higher, comparing the two, natural gas comes out as the clear winner recently. In the chart below we show the ratio of front-month crude oil futures to natural gas futures. When the line is rising, oil is outperforming natural gas. When the line is falling (as it is now), natural gas is outperforming oil. Since this past March, the ratio of the two has been in a steady decline and it is now at the lowest levels in a little under one year. Prior to that, the only lower readings in the ratio of the past five years was when crude prices went negative in April 2020 and in November 2018.

 

Intraday Commodity Spikes
Fri, Oct 8, 2021

Since the late spring, both silver and gold have been in steady downtrends spending much of that time below their 50-DMAs. Those downtrends remain in place, but both metals did find a short-term bottom on September 29th. While they have been rallying in the past week and a half, today each one has stalled out. From the early morning leading up to the Nonfarm Payrolls report, precious metals ramped higher with a surge immediately following the weaker than expected report. Only a couple hours after the release, gold and silver had erased a large portion of their earlier gains. In fact, silver is now 2.15% below its intraday high and gold is 1.36% below its high. For gold, in particular, that intraday reversal also marked a rejection of its 50-DMA which it—as well as silver—has struggled to stay above for most of the past several months.



Crude oil is yet another commodity that is currently down off of its intraday highs, and like gold, the reversal came at a pretty interesting level. At its high Friday morning, front-month WTI futures rose above $80 for the first time since November 2014.

 

Texas Tea Double Digit Dip
Mon, Nov 29, 2021

Crude oil prices are back on the rise this week after a sharp decline last Friday. As for how severe of a drop it was, front-month WTI futures fell 13.06% which was the worst single-day decline since April of last year; the same month that saw crude prices dive into negative territory. Looking back to 1983, including last Friday, there have only been 32 days in which crude has fallen double-digit percentage points in a single session. Outside of the series of volatile moves in March and April 2020, November 28, 2014 was the last time that there was as sharp of a decline of at least 10 percentage points.



Crude prices are rebounding today and are currently back above $70, although they've been pulling back all morning. In the table below, we show the other dozen times prior to Friday in which crude oil fell at least 10% in one day without having done so in the prior 3 months. As shown, today's rebound is actually pretty abnormal with WTI typically declining the day after a 10% drop.

As for longer-term forward performance, crude has continued to average declines out over the next three months with positive returns only half the time. On the other hand, six months to one year out has tended to see stronger than normal returns for the commodity.

 

Energy Stocks to Oil Ratio Below Average
Thu, Jan 13, 2022

Oil has had a strong start to the year thus far, and Energy has been the best performing equity-market sector on a year to date basis by a wide margin. This is due to the fact that the performance of the Energy sector (XLE) tends to be highly correlated to the price of oil, holding a correlation coefficient of 0.81. Currently, the ratio of the price of XLE versus oil is below historical averages. The current level is 0.77 and the average since XLE began trading is 0.99, suggesting there may be upside in the energy sector should oil hold its current levels. However, the ratio is still in a 'normal' range, as it is less than one standard deviation away from the historical average.



The Oil and Gas Exploration and Production industry (XOP) tends to be correlated with the price of oil as well (coefficient of 0.80). Historically, the ratio of XOP versus Oil has an average of 2.36, but the current level is far lower at 1.33. Additionally, the ratio is 1.7 standard deviations away from the average, which may imply that there is an opportunity to capitalize on a mispricing of XPO relative to the price of oil. However, since the start of 2020, the ratio has been suppressed and there is little evidence to suggest that this will change any time soon. Stay tuned as we will be releasing a deeper dive into oil tomorrow! Stay on top of market trends by becoming a Bespoke subscriber today. Click here to view Bespoke's premium membership options.



As always, past performance is not a guarantee of future results. This is for informational purposes only and is not a recommendation to buy or sell a specific security.

 

Crude Oil Snapping a Historic Winning Streak
Fri, Feb 18, 2022

With front-month WTI futures lower again today and in addition to the losses earlier this week, black gold declined over 2% this week. As shown below, this week's decline looks to be breaking the commodity's uptrend that has been in place since late last year which has brought it up to some of the highest levels in several years.



The rally over the past few months has been very consistent for crude oil. In fact, crude oil is on pace for its first weekly loss in eight weeks. Historically, it has been uncommon for crude oil to rally for such a long span. Since 1983, there have only been five other weekly winning streaks that have also gone on for at least 8 weeks in a row. The most recent of these ended at nine weeks last October.



Below we show the performance of crude oil following each time that it has ended a winning streak of at least 6 weeks, of which there have been 24 since 1983. Performance following the end of these streaks has been mixed with positive performance around 50% of the time one week, one month, six months, and one year later across these instances. Three returns, however, have more consistently seen positive returns which have on average been larger than the norm.

 

Oil Tops $100 Per Barrel
Thu, Feb 24, 2022

For the first time since September of 2014, the price of brent crude oil has topped $100. This occurred on the back of Russia's invasion of Ukraine, which unleashed a slew of sanctions against Russia from the US & EU, sparking flash backs to the Cold War. Diplomatic relations between Russia and the West are deteriorating, and NATO Secretary General Jens Stoltenberg commented, "Peace in our continent has been shattered. We now have war in Europe, on a scale and of a type we thought belong to history."

Russia is the world's second largest producer of natural gas (behind the US) and the third largest producer of oil, as per the US Energy Information Administration. Additionally, Russia has the second largest spread between oil produced and oil used (behind just Saudi Arabia), giving the country a key roll in supplying oil to the rest of the world.



The last time that oil topped $100 per barrel for the first time in three months was in January of 2011. In just two months, the price of oil shot 17.6% higher, resulting in a y/y price increase of 41.4%. This occurred on the back of political turmoil in the Middle East, particularly in Egypt, Lebanon, Yemen and Bahrain. These conflicts caused speculation of continued unrest in the entire region, thus pulling into question the ability for the Middle East to adequately supply the world with oil. This occurred while demand for fossil fuels remained robust, hence the soaring price of oil. Oil did not definitively break back below $100 per barrel level until September of 2014, when OPEC increased output, oil production in the US began to boom and the Middle East's geopolitical situation eased. The combination of these three factors sent the price of oil tumbling, falling by 51.8% in less than five months.

In 2008, the sky-rocketing in the price of oil was largely demand driven. In late February, oil topped $100 after considerable demand increases crossed with a stagnant supply. Oil moved continuously higher over the preceding 12 months, gaining 63.0% when all was said and done. However, the global financial crisis, also known as the great recession, caused a severe reduction in economic activity and demand, sending the price of oil tumbling by 58.2% in just one year following the initial topping of $100 per barrel.

Below is a set of graphs that shows the performance of the S&P 500 during these periods. As you can see, a rise in the price of oil does not necessarily imply a market pullback. In fact, a high price of oil insinuates that economic activity is strong and demand is robust.







Whereas the correlation coefficient between brent crude and the S&P 500 is just 0.07 since the turn of the century, the correlation in the year before and after oil tops $100 for the first time was 0.40 between February of 2007 and 2009 and 0.84 between January of 2010 and 2012. These coefficients signify a moderate and strong positive relationship, respectively. When oil eventually definitively moved below $100 per barrel later in 2008, the S&P 500 crashed alongside oil prices, but the opposite was seen in 2011. Needless to say, the market is influenced by a multitude of factors, and oil is simply a single input.

Although we don't have much data to go on, the forward performance of the market has been closely tied to the performance of brent crude after oil has topped $100 since 2000. In 2008, crude crashed just as quickly as it had risen, and the market followed suit. On the other hand, the price of crude remained elevated following the topping of $100 in 2011, and the market performed positively, but the forward year performance was lesser than the average since the turn of the century (3.1% vs 6.8%). In both occurrences, the price of brent crude climbed higher over the course of the next three months. In 2008, the price of brent crude rose by 29.8% in the next three months and 13.6% over the following six months. However, one year later, the price had crashed by 59.4%. In 2011, brent crude appreciated by 24.6% in the following three months, 15.6% in six months and 8.7% in a year. However, insinuating that the crash in 2008 had anything to do with oil would be a mistake. In fact, the inverse is likely true. Long story short, investors should not sell this dip due to the hike in oil prices alone, but there is much more to consider in the current macro environment.

 

WTI Monthly Win Streak
Mon, May 2, 2022

It's been a monster year for cruse oil and it continued in April. For the month, WTI rallied 4.4% and finished the month at $104.7 per barrel. This comes as Russian supply has been essentially cut off from Western markets, the Saudis hold back supply, and US drillers are in the process of ramping up capacity to meet demand, which is a process that takes several months to complete. Most notable about April's rally was that it marked the fifth consecutive month in which WTI rallied, which is tied for the second-longest streak on record (since 1983). The only streak that was longer was in late 2010/early 2011 when WTI notched eight straight months of gains.



The chart below outlines the long-term price chart of WTI Crude. Two aspects stand out in the chart. First, crude oil tended to see additional gains in the short term following these five-month streaks. Secondly, it is also worth noting that three of these occurrences happened within two years (2009 - 2011), which was likely due to aggregate demand ticking higher as the economy emerged from the Global Financial Crisis. The current period is relatively similar, as the global reopening has put upward pressure on the demand curve after oil producers lowered output during COVID. That increased demand has also been exacerbated by supply constraints following the Russian invasion of Ukraine.



The table below outlines the performance of WTI after the fifth straight month of prior five-month win streaks. WTI tended to trade down over the following month but reversed course to book gains in the following three and six months. In the month following these streaks, WTI averaged a loss of 4.4% (median: -4.8%), booking gains just one time (20%). After three months, WTI averaged a gain of 5.1% (median: 5.5%), performing positively 80% of the time. Over the next six months, average performance and positivity rates declined to 1.9% and 60%, respectively.

Higher oil prices affect energy prices, shipping rates, and the cost of so many more secondary products. Therefore, higher oil prices tend to be inflationary and crimp corporate margins as well as consumer buying power. Historically speaking, though, the S&P 500 has averaged a gain of 8.3% (median: 12.1%) during these streaks, which is 420 basis points higher than the average performance for all five-month periods since 1983. In the month following these streaks, the S&P 500 has averaged a gain of 1.4% (median: 3.2%), which is higher than the historical average as well. In the next three months, the index has averaged a gain of 4.5% (median: 4.9%) with positivity rates higher than that of all periods. Similar to what we see in the six-month performance of WTI, positivity rates moderate for the S&P 500, with average six-month gains of 3.2% (median: 0.2%) versus around 5% for all six-month periods since 1983.

 

And Then It Was Energy's Turn
Tue, Jun 21, 2022

The Energy sector has bounced along with the overall market today, but last week it was that sector's turn to get taken to the woodshed. Throughout the year, Energy was the only sector that worked, and less than two weeks ago it traded at 52-week highs. From the high on June 8th through Friday's close, though, the S&P 500 Energy sector fell over 20%. The only other times since at least 1990 that the Energy sector fell more than 20% in an eight trading day span were in October 2008 and March 2020. While the sector's 50-day moving average didn't hold in last week's plunge, the sector was able to hold support at its late April lows.



In addition to falling over 20% in an eight-day span, the Energy sector's 17.2% decline last week (5-days) was also one that was surpassed by only a handful of other periods (October 2008, August 2011, and March 2020) since 1990. While declines of last week's magnitude have been very uncommon, Energy is a volatile sector, and as illustrated in the chart below, there have been a number of periods in the last thirty years when the sector fell 10% or more (red line) in a five-day span.



Of the periods mentioned above where the Energy sector dropped as much as it did in the five days ending last Friday, they were also periods of overall market weakness. To help adjust for broader market moves, the chart below shows the rolling five-day performance spread between the S&P 500 Energy sector and the S&P 500 going back to 1990. Last week marked just the sixth period in the last 30+ years that the Energy sector underperformed the S&P 500 by more than ten percentage points in a five-trading day span. The other periods were April 1999, October 2000, November 2001, October 2008, and March and April 2020. On a side note, one aspect of the chart below that really stands out is how untethered the Energy sector has become relative to the S&P 500. Since 2020, the range of out/underperformance for the sector relative to the S&P 500 has widened out to an unprecedented range.

Separately, given the fact that Energy's decline occurred as oil prices were only down a bit over 10% from their 52-week high (-11.4%), we were curious to see how far WTI was from 52-week highs following prior five-day periods where the Energy sector experienced massive underperformance. Of the six prior periods, there was only one where crude oil was down less relative to its 52-week high than it was as of last Friday (April 1999). Additionally, the only other time it was down by a similar amount was in October 2000. In the remaining four periods, crude oil prices had already declined significantly relative to their 52-week highs with declines of at least 48% and up to 70%.

 

What Happened to Energy?
Wed, Jul 6, 2022

Up until June 8th, the Energy sector was the only thing working in the market. However, the sector has reversed dramatically, falling close to 25% since. This comes as the price of oil pulls back and the White House targets the entire vertical with accusations of profiteering. As any investor knows, the price of oil is not set by individual energy companies, but rather by the forces of the market. Interestingly, the same administration that is pressuring oil companies to increase supply campaigned on the fact that they would not allow for drilling permits to be renewed on federal land, so the current rhetoric is... interesting to say the least. To quote Biden himself: "Number one, no more subsidies for the fossil fuel industry. No more drilling on federal lands. No more drilling, including offshore. No ability for the oil industry to continue to drill, period." Rhetoric like this can logically cause a reduction in domestic energy investments, as CFO's adjust capital expenditures based on added legislative risk.

Nonetheless, the price of oil has pulled back significantly, which causes a compression in gross margins for suppliers. Oil is currently trading at about $100 per barrel. Although oil is still up over 33% YoY, it has pulled back by 23.3% relative to highs. Most industries will breath a sigh of relief, but energy companies will be in the other camp. Notably, crude recently broke its uptrend, and seven of the last 15 trading days have seen declines of 3% or more.



Below is a chart showing the rolling % of 3%+ daily declines over all 15-day periods. As you can see, this is an extremely elevated reading, surpassed by just The Great Recession and the COVID Crash. Following the high reading in 2008, XLE rebounded 8.9% in the next week and 7.8% over the next month. In March of 2020, XLE fell by an additional 13.1% over the next week, but rebounded 14.7% over the following month after the peak reading.



Below are snapshots of S&P 500 Energy stocks as they currently stand versus where they stood on June 8th when XLE peaked. All but one of the stocks have entered an oversold range after every single one was overbought as of 6/8. What a difference a month can make! On average, these stocks were up 66% YTD (median: 64.8%) on June 8th, but are now up an average of just 22.3% on a YTD basis (median: 18.0%). Between the close on 6/8 and 7/5, the average stock on this list fell by 26.1% (median: -26.7%), delivering pain to investors who bought the rip.

 

4th Longest Streak of Declines in Prices at the Pump
Mon, Jul 25, 2022

The price of a gallon of gas, while still up YTD and relative to most other periods in the past, has pulled back considerably and consistently over the last six weeks. While a gallon of gas topped $5 in early to mid-June, over the weekend, the average price was back down to $4.36. The decline in prices has also been consistent as prices have now declined for 41 straight days. Going back to 2005, when AAA began tracking the daily national average price, this current streak now ranks as the fourth-longest on record after surpassing the 39-day streak from September 2006 over the weekend. In order for this current streak to move into the top three and oust the 62-day streak from the COVID crash, we'll need to see another three weeks of daily declines, and in order to move into first place overall, we'd need to see the current streak nearly triple in length to 118 days and stretch out to early October!



While the current streak of declines is the fourth-longest on record, the magnitude of gasoline's decline over the last 40 days hasn't been quite as extreme. At -13%, there have been seven other periods where average prices at the pump experienced a larger decline over the same time period. What is notable, however, is that back in March the 40-day rate of change was the second highest on record trailing only the 33% increase that came in the wake of Hurricane Katrina in September 2005.



In order for prices at the pump to keep declining, we're going to need oil prices either to stay around current levels or continue declining. Oil prices have obviously been weak for the last month or so, but over the last two weeks have shown some stabilization above the 200-DMA, including two different days when the price dropped below the 200-DMA intraday but bounced. If the 200-DMA holds in the near-term, gas prices are likely to stop declining, so this will be a key level to watch for what will ultimately determine the health of the consumer.