Crude Oil Prices Resume the Long-Term Trend



Crude oil price trends

Crude oil prices fell for the second consecutive day. Prices fell by 11% in the last two days after rising by 25% since January 20, 2016. The fading alliance between Russia and the Organization of the Petroleum Exporting Countries for collective crude oil production cuts and the consensus of the rising US crude oil inventory are weighing on crude oil prices.

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Crucial support 

Long-term oversupply concerns, pessimistic sentiments of a Chinese slowdown, and record global inventory will continue to put pressure on crude oil prices. Crude oil prices could see support at $25 per barrel. Prices tested this mark in 2003. However, rising demand from India and lower crude oil prices could benefit oil prices. Oil prices could see the next resistance at $37 per barrel. Oil prices tested this level in November 2015.

Crude oil price forecast 

Oil prices are trading below key moving averages. The price chart suggests more pain for oil prices. However, the relative strength index is oversold. It suggests that oil prices could rally. The World Bank estimates that crude oil prices will trade around $37 per barrel in 2016. Oil giant BP (BP) suggests that the current turmoil in the oil market could even push oil prices to $10 per barrel.

Goldman Sachs suggests that crude oil prices could peak around $40 per barrel by the end of 2016 and bottom around $20 per barrel. If US crude oil production takes longer than expected to slow down, we could see crude oil trade lower for the next two decades. The data compiled by Bloomberg suggest that US crude oil could hit $46 per barrel in 4Q16. Brent crude oil prices could hit $48 per barrel in the same period.

Oil prices are trading close to 13-year lows. Low oil prices led to the lowest 4Q15 earnings loss for BP in almost two decades. BP is laying off its employees and cutting its capital expenditure. The roller coaster ride in oil prices also impacts oil producers like Laredo Petroleum (LPI), Whiting Petroleum (WLL), PetroChina (PTR), Petróleo Brasileiro SA Petrobras (PBR), ExxonMobil (XOM), and Apache (APA). It 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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