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Decline in Crude Oil Pressures XLE

David Becker
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Benchmark Brent crude oil declined following a decrease in Libyan supply fears. Negotiations concluded yesterday to release two captured terminals, freeing up additional exports. Brent futures hit a new three-week low Thursday, falling below $111 a barrel. Additionally, U.S. crude stocks dropped by more than expected last week, falling 3.2M barrels, compared to a previous estimated decrease of 2.2M.

Inventory levels were lower than expectations according to the latest report from the Department of Energy. U.S. commercial crude oil inventories decreased by 3.2 million barrels from the previous week. At 384.9 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Gasoline inventories decreased by 1.2 million barrels last week, while distillate fuel inventories increased by 1.0 million barrels last week but are near the lower limit of the average range for this time of year.

Demand for petroleum on the other hand did not paint a pretty picture. Total products demand over the last four-week period averaged 18.7 million barrels per day, down by 1.2% from the same period last year. Over the last four weeks, gasoline demand averaged about 9.0 million barrels per day, up by 0.5% from the same period last year. Distillate fuel demand averaged 3.8 million barrels per day over the last four weeks, down by 8.0% from the same period last year.

Energy stocks felt the pressure of the decline in both Brent and WTI crude oil. Producers and developers were hit, after making all-time highs recently. Momentum on the XLE Energy Select Sector SPDR has turned negative with the MACD (moving average convergence divergence) index generating a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread.

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