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WTI Crude Oil Futures Broke below the Trading Channel

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Trading channel  

December WTI (West Texas Intermediate) crude oil futures broke below the key support level of $43 per barrel on October 27, 2015. Prices have been fluctuating between $43 and $50 per barrel since September 2015. The long-term oversupply concerns and record inventory are dragging oil prices lower.

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Key pivots  

The rising demands from South Korea and India could benefit crude oil prices. Crude oil prices could see resistance at $50 per barrel. Prices hit this mark in July 2015. On the other hand, slowing global growth and the appreciating dollar could drag crude oil prices lower. WTI prices could see support at $38 per barrel. Prices tested this mark in August 2015.

The long-term bearish momentum is dragging the crude oil market and oil supermajors’ performance. Oil supermajors Shell (RDS.A), BP (BP), ExxonMobil (XOM), and Chevron (CVX) are known for their massive mega-project spending, dividend payouts, and share buybacks. These supermajors changed their game plans due to the turmoil in the crude oil market.

Crude oil prices fell from the peak of $107 per barrel in June 2014 to $43 per barrel on October 27, 2015. Due to lower oil prices, these oil supermajors lost almost $20 billion cash flows in 1H15, according to an analysis by the Wall Street Journal. BP is planning for more spending cuts and asset sales. These oil supermajors have announced massive spending cuts by $30 billion. These spending cuts led to the delay in the production of 7.3 billion barrels of crude oil. The oil supermajors are planning for more spending cuts, asset sales, layoffs, and a delay in new oil projects.

BP expects oil prices to stay lower longer due to oversupply concerns. The EIA (U.S. Energy Information Administration) projects that WTI crude oil prices could average around $50 per barrel in 2015 and $55 per barrel in 2016. Citigroup forecast that WTI oil prices could hit $32 per barrel due to oversupply concerns. Société Generale forecasts that oil prices could trade around $49.40 per barrel in 2016.

ETFs like the iShares US Oil & Gas Exploration & Production ETF (IEO) are also impacted by falling crude oil prices.

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