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Bull Market: Crude oil prices and inventories move in same direction

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Part 4
Bull Market: Crude oil prices and inventories move in same direction PART 4 OF 4

Crude Oil Prices Volatile Due to Short Covering and Profit Booking

Price channel

October WTI (West Texas Intermediate) crude oil futures contracts rallied for the fourth trading session in the last five days. Prices were trading close to their nearest resistance level of $49 per barrel on September 2, 2015. Crude oil prices are volatile due to short covering and profit booking.

Crude Oil Prices Volatile Due to Short Covering and Profit Booking

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Key pivots

Profit booking and long-term oversupply concerns could drag crude oil prices lower. The nearest support for crude oil prices is at $38 per barrel. Prices tested this level in August 2015. In contrast, lower crude oil prices and speculation of increasing imports from India and South Korea could support crude oil prices. The next resistance level for crude oil prices is at $50 per barrel. Prices tested this level in August 2015.

Citigroup estimates that WTI crude oil prices could hit $32 per barrel in the near term. The EIA (U.S. Energy Information Administration) estimates that crude oil prices could average around $49 per barrel in 2015 and $54 per barrel in 2016. The crude oil price chart suggests that crude oil prices could oscillate between $40 per barrel and $50 per barrel in the near term.

The volatility in crude oil prices affects crude oil producers like Newfield (NFX), Noble Energy (NBL), and Devon Energy (DVN). They account for 3.07% of the Energy Select Sector SPDR ETF (XLE). The crude oil production mix of these stocks is more than 41% of their total production.

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

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