Skip to main content

How Low Can Oil Go?










I am an analyst and anti-economic bubble activist who is currently warning about growing bubbles in Canada, Australia, Nordic countries, China, emerging markets, Web 2.0 startups, U.S. higher education, and more. I believe that the popping of these bubbles will cause the next financial crisis.




Contact Jesse Colombo

The author is a Forbes contributor. The opinions expressed are those of the writer.






INVESTING 



11/30/2014 @ 6:55PM 






Six months ago, I wrote a detailed report warning about the bubble in crude oil and why it was likely headed for a bust. 





That was on June 9th, when light sweet crude oil was trading at $102 per barrel; in less than two weeks, the crude oil bubble reached its peak, and plunged to just $66 today – a 35 percent decline that took the world by surprise. Since then, this report has gone viral with over 175,000 views.




Though I plan to write a detailed follow-up report explaining what I foresee for crude oil and the shale energy industry after this bust, I’d like to use this post to briefly show some of the key charts that are relevant for determining crude oil’s next immediate move.





On Black Friday, OPEC announced that it will not cut production to shore up oil prices, which caused oil to crash by over 10 percent that day alone. Friday’s plunge caused light sweet crude oil (the U.S. oil benchmark) to sink below its $70 support level. If this break below $70 can be sustained, $60 is the next obvious support level that crude may try to shoot for.




At some point, a bounce or consolidation may occur as crude oil is quite oversold on a technical basis. 





One scenario is that crude tries to touch $60 or just above it and consolidates before its next major directional move. If the $60 support level is broken, $40 (the early-2009 lows) is the next major support level to watch.





Source: Barchart.com












Brent crude oil (the main benchmark outside of the U.S.) sliced under its $90 support level and is now sitting just above its $70 support level. 




As with light sweet crude, there is a good chance that brent crude will experience some sort of bounce or consolidation in the near future as it tries to work off its oversold condition. 



Brent crude may start to consolidate off of the $70 support level or just above it. 




If $70 is eventually broken, the next major or obvious support level is found all the way down at $40. 




 






Source: Barchart.com

Following the U.S. dollar is key to understanding the crude oil market. The U.S. dollar trades inversely with commodities including oil, and its moves often affect crude oil prices very strongly. 




The U.S. dollar’s rally since July was one of the primary reasons why crude oil plunged when it did. Traders who can successfully forecast the direction of the dollar can apply this knowledge to forecasting crude oil.




A few months ago, the U.S. Dollar Index climbed above its diagonal resistance line and is now just below its $90-$93 resistance zone. If the Dollar Index can surpass this resistance zone, the bearish case for crude oil will likely persist. 




If the Dollar Index experiences some sort of pullback or consolidation in the near future (possibly under the $90-$93 zone), then both brent and light sweet crude oil are likely to experience consolidations or bounces of their own. It is possible that the Dollar Index will consolidate under $90-$93 before attempting a bullish breakout above this level.




A major possible bullish factor for the dollar is the eventual unwinding of the multi-trillion dollar global carry trade that was encouraged by the Fed’s ZIRP and QE policies. 





This carry trade helped to inflate bubbles in assets across the world, as I discussed at the beginning of all of my emerging markets bubble reports. 




The ending of this carry trade will harm the inflated assets that benefited from the carry trade, while the dollar will rally.



Source: Barchart.com 


As I wrote in my original crude oil bubble report, I believe that the popping of the oil bubble will also lead to the popping of a bubble that developed in the U.S. shale energy industry. 





To summarize, the shale boom was driven by a combination of artificially high oil prices after 2009 and cheap credit in the form of junk bonds that were used to finance the shale producers’ drilling activities.





Many shale oil companies have production costs in the $70s, so a sustained drop below this level will cause many of these companies to shut down and lay off workers. 




The energy industry is notorious for its violent booms and busts, so another bust would certainly not be unprecedented. 




The early-1980s oil bust severely harmed the oil-dependent economies of Texas and Oklahoma.




Please follow or add me on Twitter, Facebook, and LinkedIn to stay informed about the most important trading and bubble news as well as my related commentary.

(Disclaimer: All information is provided for educational purposes only and should not be relied on for making any investment decisions. These chart analysis blog posts are simply market “play by plays” and color commentaries, not hard predictions, as the author is an agnostic on short-term market movements.)









http://www.forbes.com/sites/jessecolombo/2014/11/30/how-low-can-oil-go/


Popular posts from this blog

THE MOST SOUGHT AFTER MANGOES IN THE WORLD ....

While "Flavor" is very subjective, and each country that grows mangoes is very nationalistic, these are the mango varieties that are the most sought after around the world because of sweetnesss (Brix) and demand.

The Chaunsa has a Brix rating in the 22 degree level which is unheard of!
Carabao claims to be the sweetest mango in the world and was able to register this in the Guiness book of world records.
Perhaps it is time for a GLOBAL taste test ???





In alphabetical order by Country....










India




Alphonso





Alphonso (mango)
From Wikipedia, the free encyclopedia








Alphonso (हापुस Haapoos in Marathi, હાફુસ in Gujarati, ಆಪೂಸ್ Aapoos in Kannada) is a mango cultivar that is considered by many[who?] to be one of the best in terms of sweetness, richness and flavor. 


It has considerable shelf life of a week after it is ripe making it exportable. 

It is also one of the most expensive kinds of mango and is grown mainly in Kokan region of western India.

 It is in season April through May and the fruit wei…

Mangoes date back 65 million years according to research ...

Experts at the Birbal Sahni Institute of Palaeobotany (BSIP) here have traced the origin of mango to the hills of Meghalaya, India from a 65 million year-old fossil of a mango leaf. 





The earlier fossil records of mango (Mangifera indica) from the Northeast and elsewhere were 25 to 30 million years old. The 'carbonized leaf fossil' from Damalgiri area of Meghalaya hills, believed to be a mango tree from the peninsular India, was found by Dr R. C. Mehrotra, senior scientist, BSIP and his colleagues. 




After careful analysis of the fossil of the mango leaf and leaves of modern plants, the BISP scientist found many of the fossil leaf characters to be similar to mangifera.


An extensive study of the anatomy and morphology of several modern-day species of the genus mangifera with the fossil samples had reinforced the concept that its centre of origin is Northeast India, from where it spread into neighbouring areas, says Dr. Mehrotra. 




The genus is believed to have disseminated into neighb…

DHL (INDIA) makes gifting mangoes as easy as 1-2-3-....

Gifting mangoes is now easy with DHL
Announcement / Corporate


 May 19, 2011, 14:04 IST





Come this summer pamper your loved ones abroad with a box of delicious mangoes through DHL’s Express Easy Mango service, a unique one-stop-shop and hassle-free service for gifting mangoes all across the world.






This unique service by DHL Express, the world’s leading express company, allows customers to send mangoes from India across the world to the following countries Belgium, Canada, Czech Republic, Germany, Greece, Hungary, Hong Kong, Italy, Luxemburg, Maldives, Netherlands, Norway, Oman, Qatar Singapore, Switzerland and Sweden.





Mangoes can be availed of free of cost by merely paying for the Air Express service. In addition, DHL Express assists customers with the necessary paperwork along with procurement of quality-grade Alphonso mangoes.





Commenting on the new service, Mr. R.S Subramanian, Country Head, DHL Express India said: “With the advent of the mango season, it is no wonder that DHL Express Ea…