Global crude oil prices have fallen more than 65% in the last 18 months and are following a long-term falling trend. Rising US crude oil inventories and rising production from OPEC are affecting the crude oil market. Oil prices are trading close to historic lows.
Bearish traders could see support at $34 per barrel. Prices tested this mark in December 2015. This was the lowest crude oil price since 2009. Record production from the United States to Russia could drag crude oil prices lower. In contrast, demand from India and lower oil prices could boost consumption and support oil prices. Bullish traders could see resistance at $40 per barrel.
Historically, higher production capacities of OPEC member nations have negatively affected crude oil prices. OPEC’s production capacity is expected to increase in 2016 with Iran’s move to scale up production. Meanwhile, Iran forecasts that crude oil could trade between $35 and $50 per barrel in 2016. Crude oil prices might not increase to more than $60 per barrel in the next four years.
The mega glut in the oil market, OPEC’s loss of power as a cartel, and slowing demand led to the oil price collapse in 2015, and it could continue in 2016. The last four times crude oil prices had a sharp rebound, it was followed by a recession.
The EIA (U.S. Energy Information Administration) estimates that WTI crude oil prices could average $51 per barrel in 2016. Brent crude oil prices could average $56 per barrel in 2016. Danske Bank estimates that crude oil prices could test the $25 per barrel mark before crude oil producers get serious about curbing oil production. Citigroup suggests that Brent and WTI oil prices could average $48 per barrel in 2016.
The lower oil prices affect the margins of oil producers like PetroChina (PTR), Occidental Petroleum (OXY), Apache (APA), Royal Dutch Shell (RDS.A), Total (TOT), and Petrobras (PBR). They also affect ETFs like the iShares US Oil & Gas Exploration & Production ETF (IEO) and the PowerShares DWA Energy Momentum Portfolio (PXI).
To learn more, read Crude Oil Market: Is the Biggest Risk of 2016 Getting Bigger?