West Texas Intermediate crude climbed 3.16% today to $68.80 a barrel. Futures for May delivery moved over $68 a barrel for the first time in three years. Yesterday the American Petroleum Institute reported a 1.05 million barrel draw down in U.S. inventories. Today the U.S. Energy Information Administration reported a drop in crude inventories of 1.1 million barrels. Energy analysts had projected an increase in inventories for the week ended April 13.
But it’s not just near-term supply and demand figures that are pushing oil priced higher.
A Reuters story today had Saudi Arabia pushed to keep OPEC production cuts in place even as they near the organization’s original goals of reducing global inventories to the five-year average. OPEC has extended those production cuts to December 2018 and meets in June to decide on policy. Reuters quotes Saudi sources saying the kingdom would like to see oil prices climb above $80 a barrel and that $70 a barrel is the new floor. Brent crude closed up 2.22% today to $73.80.
In addition news stories out of Washington are noting that the Trump administration is considering the possibility of replace U.S. troops in Syria with a Arab coalition force led by Saudi Arabia. Given the current Saudi commitment in the civil war in Yemen, sources speculate that the Saudi’s would have to outsource the fighting in Syria to either soldiers from Pakistan or the Sudan to mercenary army. No one who understands how deeply the fissures between Iran and Saudi Arabia run is under any illusion that this proposal would reduce the fighting in Syria or diminish the risk of conflict between Iran and Russia on the one side, and Saudi Arabia (and the United States) on the other.
The Energy Select Sector SPDR ETF (XLE) was up another 1.56% today and is now ahead 9.29% of 2018 to date.
So far, though, the advance in energy prices has not led to a decline in the Dow Jones Transportation Average, which was up .68% today and is up 0.81% in the last month. That’s positive for the markets since many investors see the Transportation Average as a leading indicator of market direction with a fall in the index potentially setting off a Dow Theory sell signal. The strength of the Transportation Index comes from solid earnings reports from United Continental Holdings (ULA) today and earlier from Delta Air Lines. Both airlines indicated that modestly higher oil prices would not reduce guidance for the next quarter. United Continental shares were up 4.81% today.
The three oil stocks in my portfolios are also up in the last month. Pioneer Natural Resources (PXD) is ahead 14.83% in the last month as of the close on April 18. Diamondback Energy (FANG) is up 1.27%. And Statoil (STO) is higher by 12.65%