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Will Crude Oil Prices Be Range Bound?

Crude Oil Prices Rose 25% in the Last 3 Weeks despite the Oil Glut

(Continued from Prior Part)

Trading range

WTI (West Texas Intermediate) crude oil futures for October delivery broke above the price channel on September 15, 2015. However, prices fell back on yesterday’s trade. Prices are trading within a narrow channel of $44 per barrel and $46 per barrel in September 2015. The gap between supply and demand will continue to put pressure on the crude oil prices.

Support and resistance

The falling crude oil inventory and slowing signs of US crude oil production could support crude oil prices. Crude oil prices could see resistance at $50 per barrel. Prices tested this level in August 2015. In contrast, weak demand cues and global economic growth concerns could push crude oil prices lower. Prices could test the nearest support of $38 per barrel. Crude oil prices hit this level in August 2015.

Crude oil price forecast

Goldman Sachs forecasts that the US crude oil prices could test $20 per barrel in the worst case scenario. It suspects that the global inventory and supplies are more than the projected figures. This means a long-term oversupply period. It will result in long-term lower crude oil prices. Goldman Sachs (GS) also thinks that this crude oil glut could last as long as 15 years. It could keep prices low for almost the next 15 years. However, OPEC (Organizational of the Petroleum Exporting Countries) projects that crude oil prices could hit $80 per barrel in the short term. Citigroup projects that crude oil prices could hit $32 per barrel in the near term.

Falling crude oil prices negatively impact upstream players like ConocoPhillips (COP), EOG Resources (EOG), and Anadarko Petroleum (APC). They account for 10.87% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil output mix is greater than 32% of their total production.

Lower crude oil prices benefit ETFs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO). In contrast, ETFs like the Velocity Shares 3X Long Crude ETN (UWTI) also benefit from rising crude oil prices.

Browse this series on Market Realist:

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