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How Long Could Crude Oil Trade Lower?

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Crude oil prices trading below key psychological levels 

Crude oil prices fell on Tuesday, Febaruy 9, 2016, for the fourth straight day. Prices have fallen 25% in 2016 and 70% since June 2014 due to a wide gap between supply and demand. We looked at this in the previous part of this series. The consensus of rising US crude oil inventory will put pressure on crude oil prices. Prices are trading below the key psychological level of $30 per barrel.

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Key support levels 

The long-term oversupply concerns and speculation of slowing demand might put pressure on crude oil prices. Crude oil prices could see support at $25 per barrel. Prices hit this mark in 2003. On the other hand, rising demand from China and India could support crude oil prices. Crude oil prices could see resistance at $37 per barrel. Prices hit this mark in November 2015.

Crude oil price forecast 

The EIA (U.S. Energy Information Administration) forecasts that Brent crude oil prices could average $38 per barrel in 2016 and $50 per barrel in 2017. The US benchmark West Texas Intermediate crude oil prices could average $38 per barrel in 2016 and $50 per barrel in 2017. Goldman Sachs suggests that crude oil prices could peak around $40 per barrel by the end of 2016 and bottom out around $20 per barrel. The World Bank estimates that crude oil prices will trade around $37 per barrel in 2016. If US crude oil production doesn’t slow down, some believe we could see crude oil trade at low levels for the next two decades.

Some market experts suggest that fears of global recession could slow down oil demand. They believe oil prices could hit $16 per barrel in that scenario. Some oil traders believe that a slowing Chinese economy might put pressure on oil prices to trade lower for almost a decade.

Historic low oil prices affect margins of oil producers such as PetroChina (PTR), Petrobras (PBR), Newfield Exploration (NFX), Pioneer Natural Resources (PXD), and ConocoPhillips (COP). ETFs such as the ProShares Ultra Bloomberg Crude Oil ETF (UCO) and the ProShares UltraShort Bloomberg Crude Oil ETF (SCO) are also influenced by the roller coaster ride in the crude oil market.

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