After breaking the triple-digit mark in 2012, crude oil futures have struggled to maintain their positive momentum. The end of last year saw the fossil fuel fall at the hands of increased output and supply, as new technologies are making it easier than ever to locate and extract reserves, not to mention the prevalence of natural gas. But the last few weeks of 2012 and the beginning of this year have seen crude turn things around, as the commodity has been once again reaching for $100 [for more crude oil news and analysis subscribe to our free newsletter].
The Economic Factor
Since bottoming out in the beginning of December, crude has clawed back 10.7% of its losses while inclement weather puts a damper on the performance of natural gas. Crude’s bullish performance has been based mostly on the strong economic performance seen in not only the United States but other significant markets like China. As U.S. indexes continue to soar, an improved Chinese manufacturing sector suggests a renewed demand for oil, also helping to push this commodity higher.
Though the run has not been without its blips, like the cutting of capacity of the Seaway pipeline, it seems that crude is a safe bet for as long as major equities are able to prosper. Another hit came in the form of a supply figure, as U.S. stockpiles in Cushing rose above 50 million barrels for the first time ever just a few weeks ago. As the glut continues to ease from supplies, crude will likely continue its run forward [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].
Investors will want to keep an eye on production in new shale fields like those in North Dakota, Texas and California, as those will have the most immediate impact on futures. The overwhelming output of these regions has depressed U.S. prices compared to those overseas. Be sure to watch for any further news surrounding the Seaway and Keystone XL pipelines, as developments there will have a swift impact on futures prices. Futures are currently contangoed through the July contract, when they fall into a period of backwardation that persists through December of 2021, the furthest out these contracts are offered.
Disclosure: No positions at time of writing.