I asked if crude oil prices were too high in a January 24, 2025, Barchart article. I concluded:
I have been dead wrong about the path of least resistance of crude oil prices since the November 5, 2024, U.S. election. However, if U.S. output rises under the new administration, the price could be heading for $50 per barrel or lower. I maintain a bearish bias toward crude oil in late January 2025.
Commodity Bulletin: From crude oil to coffee, this FREE newsletter is for industry pros and rookies alike
On January 23, nearby NYMEX crude oil futures were at the $75.08 per barrel level, with nearby Brent futures around $77 per barrel. Oil prices have moved lower, reaching new lows for 2025 in March.
WTI futures fall and are approaching technical support
At $67.75 per barrel, NYMEX crude oil futures are moving towards a challenge of a critical technical support level.
The monthly chart highlights critical technical support at the May 2023 low of $63.57. A breach of that level could cause a wave of technical selling, as the next support level is around $50 per barrel.
Brent futures declined and are near the support level
Nearby Brent futures have already probed below the May 2023 low.
The monthly Brent crude oil chart illustrates that the March 2025 $67.95 low was under the May 2023 $68.20 bottom. The next critical level to watch on the downside is the August 2021 $63.92 low.
U.S. energy policy is bearish for crude oil
The Trump administration has pledged to tap the U.S.’s “liquid gold” to reduce energy prices, lower inflationary pressures, and increase revenue through exports. Moreover, increased U.S. petroleum production will reduce OPEC+’s pricing power.
While the Biden administration supported climate change initiatives by promoting alternative and renewable fuel production and consumption, the Trump administration is reducing regulations and increasing fossil fuel output. The bottom line is that the current U.S. policy path is bearish for crude oil, the energy commodity that continues to fuel the world. While Europe and many other countries will continue a cleaner energy path, traditional energy demand will continue to rise in China and India, the world’s most populous nations.
OPEC+ is increasing output and losing influence
The international oil cartel announced it will increase production in April 2025 after years of production cuts and quotas following the 2020 global pandemic. The shift in U.S. oil policy and the increasing odds of a Chinese economic recovery likely caused OPEC+ to pump up its volume.
Over the past years, OPEC+ has achieved a dominant position in global oil pricing as the U.S. has been on a greener energy path. The change in administrations and energy policy has reduced the cartel’s impact on prices. Meanwhile, ending the war in Ukraine will be another factor that allows oil prices to decline. Russia has depended on elevated oil prices to fund its war efforts in Ukraine.
SCO is a bearish leveraged WTI crude oil ETF product
The most direct routes for a risk position in crude oil are the CME’s NYMEX division for WTI crude oil futures and futures options and the Intercontinental Exchange’s Brent crude oil futures and futures options.
Market participants expecting falling oil prices have an alternative: the Ultrashort Bloomberg Crude Oil -2X ETF product (SCO). At $18.41 per share, SCO had over $190.5 million in assets under management. SCO trades an average of over 1.100 million shares daily and charges a 0.95% management fee. The Ultra Bloomberg Crude Oil 2 ETF product (UCO) is a complementary bullish product. SCO and UCO are leveraged products only appropriate for short-term risk positions in the crude oil market.
The most recent decline in NYMEX April crude oil futures took the price 16.2% lower from $77.86 on January 15, 2024, to $65.22 per barrel on March 5, 2025.
Over the same period, SCO rose 33.77%, moving from $14.63 to $19.57 per share. SCO is a leveraged product and the price for the gearing is time decay. If crude oil prices increase, SCO will lose more on a percentage basis than gains in crude oil. Time decay will cause SCO to lose value with crude oil prices remain stable.
The logical downside target for crude oil prices is around the $50 level. However, geopolitical issues could cause periodic recovery rallies. Markets tend to defy rational, logical, and reasonable technical and fundamental analysis during bullish or bearish trends, leading to price extensions. Therefore, $50 is a target, but lower prices are possible if the bears attack the oil market over the coming weeks and months.
