uploads/2015/05/wti-3-mont-long-term-chart-May-20-20151.png

Declining Crude Oil Inventory versus Oversupply Sentiments

By

Updated

Rectangular trading range pattern 

July WTI (West Texas Intermediate) crude oil futures trading on NYMEX showed the rectangular trading range pattern. Prices have been fluctuating between $58 and $61 per barrel for the last couple of weeks. Oversupply concerns and the strong dollar are putting pressure on oil prices.

Article continues below advertisement

Key pivots

The consensus of a massive decline in crude oil inventories would support crude oil prices. WTI could test the nearest resistance of $61 per barrel. Prices tested this level multiple times in May 2015. The possible increase in demand from Asia could also support the crude oil market. In contrast, weak sentiments of oversupply and the strong dollar could drive crude oil prices lower. The important support for WTI is at $55 per barrel. Oil prices tested this level in April 2015.

WTI oil prices broke below the lower horizontal trend line of the rectangular trading pattern on May 19, 2015. This suggests that prices could hit the nearest support of $55 per barrel.

A Bloomberg survey stated that this week will be bearish for WTI crude oil. Technical catalysts and oversupply factors will outweigh the sentiments of declining inventories—crude oil prices could fall more. Goldman Sachs estimates that crude oil prices could hit $45 per barrel by October 2015—led by massive production estimates.

Oil and gas companies like ConocoPhillips (COP), ExxonMobil (XOM), and Chevron (CVX) are impacted by declining WTI oil prices. Together, these companies account for 4.37% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They have a crude oil production mix that’s greater than 47% of their total production.

The decline in oil prices is negative for ETFs like the VelocityShares 3X Long Crude ETN (UWTI). It’s positive for ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO).

For the latest updates, visit Market Realist’s Crude Oil ETFs page.

Advertisement

More From Market Realist