Will Crude Oil Slide to $33?
When I look at the monthly chart of Crude Oil, it has very close similarity to what had happened from mid 2008 to early 2009 during the financial crisis. The decline in crude oil price in 2008-2009 was due to increasing world economic recessions and reduced demand. The decline was rapid, from the peak of $143 a barrel to mere $33 a barrel! After early 2009, this declining price trend was reversed due to improving world economies and increased demand, and a reduction in available crude oil supplies.
Now, look at 2014 and 2015. This round was decline started around June 2014 and has since then went through a decline of more than 50% from about $100 to just $45 this week. It is as severe that what happened in 2008 and the question now is whether it is going to break its near term support of $40 and then $33. Due to a combination of major Countries’ economies slowing again, stagnating World crude oil demand, increased U.S. domestic crude oil production, and OPEC’s decision to maintain current export levels, excess available World oil supply has led to the recent decline.
So far, the price seems to be supported at $44 but if no effort taken to address this by OPEC (which seems to be the case now), it is likely to record another decline by end of Jan and trend might continue well over to February. Will history repeat itself? I see the likelihood. This means that oil price will not continue to slide beyond $33, but would rather find its support there about and boost its way to recovery. The pre-requisite: since there is no supply cut, the price increase has to be supported by improved demand. The demand has to continue to be fueled by improved economic growth in US, China, Japan, or even India.