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Long-Legged Doji: Crude Oil Prices Could Fall More

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Long-legged doji

NYMEX-traded July WTI (West Texas Intermediate) crude oil futures show the long-legged doji candlestick pattern. Crude oil prices have been fluctuating between $58 and $61 per barrel for almost one month. Lately, the declining US commercial crude oil inventories have been driving crude oil prices.

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Key pivots

The long-term downward trend of WTI crude oil prices is putting pressure on crude oil prices. The current momentum is dragging crude oil prices to the nearest support of $55 per barrel. Oil prices hit this mark in April 2015. Oversupply and record inventories will put pressure on crude oil prices. In contrast, rising imports from China and Japan will support WTI prices. The key resistance for oil is seen at $61 per barrel. Prices tested this mark in May 2015.

The long-legged doji pattern suggests that crude oil prices could fall more. Last time this pattern emerged, oil prices fell. The trading range pattern suggests that crude oil could fluctuate broadly between $55 and $64 per barrel in the short term. Goldman Sachs’ estimates that WTI oil prices might hit $45 per barrel by the October 2015—led by the strong dollar and massive supply.

The increase in crude oil prices benefits ETFs like the VelocityShares 3X Long Crude ETN (UWTI). In contrast, falling oil prices are positive for ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO).

Exploration and production companies like Denbury Resources (DNR), Energy XXI (EXXI), and ConocoPhillips (COP) are negatively impacted by lower oil prices. These stocks account for 6.19% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). They have a crude oil production mix that’s more than 46% of their total production portfolio.

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