Downtrend price channel
October WTI (West Texas Intermediate) crude oil futures contracts fell for the second day and settled at the key support level of $44 per barrel as of September 14, 2015. Prices have been trading within a downward trending channel since early September 2015. The consensus of the rising crude oil stockpile could put pressure on crude oil prices.
Support and resistance
Short covering and bottom fishing could push crude oil prices higher. US crude oil prices could hit the next resistance at $50 per barrel. Prices tested this level in August 2015. In contrast, weak demand cues and oversupply concerns could push oil prices lower. The next support for crude oil prices is seen at $38 per barrel. Prices tested this level in August 2015.
Impact of BRICS (Brazil, Russia, India, China, and South Africa)
The Chinese market collapse, downgrading of Brazil’s credit rating, Russian recessionary concerns, and the South African economic slowdown will curb the demand for crude oil in the long term in the oversupplied crude oil market. In turn, this will add more pressure to the crude oil market. Societe Generale forecasts that WTI prices could average around $49.40 per barrel in 2016 despite the oversupply concerns. Likewise, the EIA (U.S. Energy Information Administration) estimates that US crude oil prices could average $49.23 per barrel in 2015 and $53.57 per barrel in 2016.
The speculation of slowing demand will put pressure on crude oil prices. This will impact US oil producers’ margins like ExxonMobil (XOM), Chevron (CVX), and Noble Energy (NBL). Combined, they account for 30.60% of the Energy Select Sector SPDR ETF (XLE). These companies’ crude oil production mix is more than 41% of their production portfolio.
ETFs like the ProShares UltraShort 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 higher crude oil prices.