Will Crude Oil Prices Break the Price Channel?
Crude Oil Market Is Hit by a Double-Edged Sword
Price channel
November WTI (West Texas Intermediate) crude oil futures contracts are showing the emergence of a downward trending price channel. Prices have been fluctuating between $42 and $47 per barrel since September 2015. The speculation of the falling crude oil inventory and oversupply concerns could swing crude oil prices.
Support and resistance
Weak demand cues and oversupply concerns seem like a double-edged sword for crude oil prices. As a result, prices could experience more pressure if the oil glut extends. Crude oil prices could see support at $38 per barrel. Prices tested this mark in August 2015. In contrast, slowing US production could support crude oil prices. The next resistance for crude oil prices is seen at $50 per barrel. Prices hit this level in August 2015.
Goldman Sachs (GS) projects that oil prices could hit $20 per barrel in the worst-case scenario. Citigroup projects that US WTI oil prices could hit $32 per barrel. Societe Generale forecasts that US WTI prices could trade around $49.40 per barrel in 2016.
The long-term lower crude oil prices impact oil producers like ExxonMobil (XOM), Murphy Oil (MUR), and QEP Resources (QEP). Together, they account for 22% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production mix is greater than 32% of their total production.
ETFs like the Velocity Shares 3X Long Crude ETN (UWTI) benefit from higher crude oil prices. In contrast, ETFs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) benefit from falling crude oil prices.
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