Black Monday marked crude oil prices’ entry into a new dimension of the sell-off called “Chinese fear factor.” The WTI (West Texas Intermediate) crude oil futures contract for October delivery hit an intraday low of $37.75 per barrel on August 24, 2015. Prices are trading in a downward price channel. Weak demand cues and record supplies are driving crude oil prices.
Support and resistance
The Chinese crude oil demand slowdown speculation and rising crude oil inventories could drag crude oil prices lower. The next support for crude oil prices is seen at $38 per barrel. Prices hit this mark in August 2015. In contrast, crude oil prices could recover sharply due to bottom fishing and short covering. Lower crude oil prices could benefit crude oil prices. The resistance for US WTI prices is seen at $50 per barrel. Prices tested this mark in August 2015.
Citigroup estimates that crude oil prices could hit $32 per barrel due to oversupply concerns in the short term. In contrast, 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. The downward crude oil price channel suggests that crude oil prices could average between $33 per barrel and $43 per barrel in the short term. Morgan Stanley estimates that robust demand from Asia could continue to put upward pressure on crude oil prices. South Korean and Indian crude oil imports hit record levels in July 2015.
The uncertainty in the crude oil market impacts energy producers like Hess (HES), Noble Energy (NBL), and Devon Energy (DVN). This affects crude oil prices. Combined, they account for 4.10% of the Energy Select Sector SPDR ETF (XLE). These stocks’ crude oil production mix is more than 41% of their total production.
ETFs like the ProShares Ultra Short Bloomberg Crude Oil ETF (SCO) benefit from falling crude oil prices. In contrast, ETFs like the Velocity Shares 3X Long Crude ETN (UWTI) benefit from rising crude oil prices.