Crude Oil Prices Could Fall Due to Profit-Booking



Crude oil price trends  

Crude oil prices rallied for the fourth consecutive day. They have rallied more than 25% since January 20, 2016. Prices had fallen by 70% due to long-term oversupply concerns. Speculation of collective crude oil production cuts, despite the record US and global inventory, is swinging crude oil prices.

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Support and resistance 

Profit-booking and record inventories could drag oil prices lower. Prices could see support at $25 per barrel. Prices hit this level in 2003. On the other hand, short covering and lower oil prices could push crude oil prices higher. Oil prices tested this level in November 2015.

Crude oil price forecast  

Morgan Stanley estimates that the consensus of the appreciating dollar will put pressure on oil prices. A 5% appreciation in the US dollar could cause a 10%–25% fall in crude oil prices in 2016, according to Morgan Stanley. Goldman Sachs suggests that crude oil prices could peak around $40 per barrel by the end of 2016 and bottom around $20 per barrel. Standard Chartered estimates that oil prices could hit $10 per barrel in the worst-case scenario in 2016. The U.S. Energy Information Administration forecasts that Brent crude oil prices could average $40 per barrel in 2016 and $50 per barrel in 2017. The US benchmark West Texas Intermediate crude oil prices could average $38.5 per barrel in 2016 and $47 per barrel in 2017.

The uptick in oil prices benefits national and international oil producers like BP (BP), PetroChina (PTR), Petróleo Brasileiro SA Petrobras (PBR), ExxonMobil (XOM), and Apache (APA). The volatility in the oil market also impacts ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the iShares U.S. Oil & Gas Exploration & Production ETF (IEO), the ProShares Ultra Bloomberg Crude Oil ETF (UCO), and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO).


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