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Massive Sell-Off: Crude Oil Prices Test New Lows

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Jan. 18 2016, Updated 11:31 a.m. ET

Crude oil prices hit new lows

February WTI (West Texas Intermediate) crude oil futures contracts trading on NYMEX fell by 5.7% and settled at $29.42 per barrel on Friday, January 15, 2016. On the same day, Brent crude oil futures trading on the Intercontinental Exchange fell by 6.7% and settled at $28.94 per barrel. The rising production consensus from Iran and the Chinese stock market turmoil led to a massive sell-off, and oil prices tumbled. The United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) also plunged in Friday’s trade, falling by 4.8% and 9.3%, respectively. The SPDR S&P 500 ETF (SPY) also followed the price trajectory of oil and fell by 2.1% in Friday’s trade.

[marketrealist-chart id=974063]

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Crude oil sinks in 2016 

Brent and US crude oil prices tested 12-year lows on Friday. They tested the new intraday lows of $28.82 per barrel and $29.13 per barrel, respectively. Crude oil prices have fallen almost 20% in 2016 and have plunged a whopping 70% since June 2014 due to long-term oversupply concerns and speculation of a rise in crude oil production by Iran in 2016, which we’ll cover in the third part of this series.

The Chinese stock market turmoil is also spreading fear across the oil market. The Chinese stock market fell by 3.5% in Friday’s trade. China is the second largest consumer of crude oil and one of the largest importers of crude oil. This led to a massive sell-off in the global oil market. Read more about China and the top importers of crude oil in the fifth part of this series. 

Record-low oil prices affect the profitability of oil and gas producers like ExxonMobil (XOM), Marathon Oil (MRO), and Hess (HES). On the other hand, they benefit oil refiners like Western Refining (WNR), Alon USA Partners (ALDW), and Northern Tier Energy (NTI).

Hedge funds 

The CFTC (U.S. Commodity Futures Trading Commission) reported that hedge funds increased their crude oil futures short positions for the week ending January 12, 2016. The bearish positions rose by 15% for the week ending January 12, as compared with the previous week. This is the highest number of short positions in a decade. The long positions are their lowest level in the last five years.

Continue reading this series to learn why WTI crude oil prices could outperform Brent crude oil prices in 2016. You’ll also find interesting insight about the oil supply and demand gap during the stock market crashes. To learn more about inventories, read EIA Crude Oil Inventory: Key Catalyst in Bearish Crude Oil Market and Gasoline and Distillate Inventories Overshadow Crude Oil Market.

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