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Are US Crude Oil Prices Trading within a Downward Channel?

Gordon Kristopher

Crude Oil Prices Make a U-Turn in the Oversupplied Market

(Continued from Prior Part)

Downtrend channel

NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for September delivery rose for the first time in the last four trading sessions. Prices are trading close to the key resistance of $45 per barrel. September crude oil futures closed at $44.96 per barrel on August 10, 2015. Refined products’ inventories are swinging crude oil prices.

Support and resistance

The consensus of the falling crude oil stockpile could support crude oil prices. The next resistance for WTI is seen at $52 per barrel. Oil prices tested this level in July 2015. In contrast, the strong dollar and oversupply concerns could drag crude oil prices lower. The key support for crude oil prices is seen at $41 per barrel. Prices tested this level in January 2009.

JP Morgan estimates that US crude oil prices could average $48.50 per barrel in 2015 and $46.50 per barrel 2016. The downward trending channel suggests that crude oil prices could average around $42 and $50 per barrel in the short term. The EIA (U.S. Energy Information Administration) forecasts that crude oil prices could average around $55 per barrel in 2015 and $62 per barrel in 2016

ETFs like the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) benefit from falling crude oil prices. In contrast, they negatively affect ETFs like the VelocityShares 3X Long Crude ETN (UWTI).

Crude oil and natural gas producers like Occidental Petroleum (OXY), Devon Energy (DVN), and ConocoPhillips (COP) are also affected by falling oil prices. Combined, they account for 7.35% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production mix is more than 41% of their total production.

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