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Citigroup: Crude Oil Prices Might Hit $32 per Barrel

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Downtrend channel

September WTI (West Texas Intermediate) crude oil futures contracts broke below the key psychological mark of $42 per barrel on August 19, 2015. Prices are trading close to the new support of $40 per barrel as of August 19, 2015. The unexpected rise in crude oil inventories led to the collateral damage in crude oil prices in yesterday’s trade.

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Key pivots

The rising crude oil inventories and oversupply concerns could drag crude oil prices to new lows. The next support for US crude oil prices is seen at $38 per barrel. Prices tested this level in February 2009. In contrast, lower crude oil prices could increase consumption. This could benefit crude oil prices. Short covering and bottom fishing could also support crude oil prices. The key resistance for crude oil prices is seen at $50 per barrel. Prices hit this level in August 2015.

The crude oil price charts and current bearish momentum could drag crude oil prices to as low as $33 per barrel. Citigroup estimates that crude oil prices might hit $32 per barrel due to oversupply concerns. The EIA (U.S. Energy Information Administration) forecasts that crude oil prices could average around $49 per barrel in 2015 and $54 per barrel in 2016.

Vehicles’ improving fuel efficiency curbs the marginal rise in consumption. This would also have a negative influence on crude oil prices. The restarting of nuclear power plants in Japan could also play a vital role in dragging oil prices lower from the world’s third largest crude oil consumer. Japan shut down most of its nuclear power plants due to the earthquake and tsunami alerts in 2011. The crude oil stockpile at sea for Africa and the Middle East would also put pressure on oil prices. This suggests that oil is going down. It might not stay at very low levels.

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

The uncertainty in the crude oil market impacts energy producers like Apache (APA), Noble Energy (NBL), and Devon Energy (DVN). They account for 1.70% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production is greater than 41% of their total production.

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