Key Charts To Watch As Crude Oil’s Bust Continues

Crude oil’s plunge continued on Tuesday due to fears of a growing glut and economic slowdown. West Texas Intermediate crude oil fell 7.3% to $46.24 a barrel, while Brent crude oil fell 5.6% to $56.26 a barrel. Crude oil’s ongoing bear market confirms the warning I published on November 6th called “Is A Crude Oil Liquidation Event Ahead?

After today’s drop, West Texas Intermediate crude oil is down approximately 40% since early-October:

WTI Crude Daily

 

Brent crude oil is down approximately 35% since early-October:

Brent Crude Oil Daily

In recent weeks, WTI crude oil broke below its uptrend line that started in early-2016 and the key $50 level, both of which are important technical breakdowns. The next price targets to watch are $40, then $30, and so on.

WTI Crude Weekly

Brent crude oil recently broke below both its uptrend line and its key $60 level, which is a bearish omen that puts $50, $40, and $30 into play as the next price targets/support levels to watch.

Brent Weekly

As I discussed a few weeks ago, crude oil is plunging because it is pricing in much slower economic growth and a likely recession, as well as growing inventories. I am particularly worried about plunging oil prices because I believe that it is going to pop the shale energy bubble that I have been warning about for years.

Here’s what I wrote in Forbes in 2014:

I am also growing increasingly concerned that the U.S. shale energy boom is actually another post-2009 economic bubble (it would be a part of the commodities bubble). In a zero-percent interest rate environment like we are currently experiencing, any economic boom can devolve into a bubble. Shale energy extraction is a very capital-intensive business that relies heavily on cheap credit to survive. Shale oil wells experience much faster decline rates than conventional oil wells, which means that energy companies must keep drilling at a furious pace just to maintain their production – a very costly proposition that is typically funded by copious amounts of debt.

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William K. 3 months ago Member's comment

What sort of fool runs on borrowed money, even at zero interest, when that money must be paid back eventually? With no promise of great profits, or any profit, why keep risking the future??

David J. Williamson 2 months ago Member's comment

Yep.

Moon Kil Woong 3 months ago Contributor's comment

Sadly this is good for major players. Until small indebted and near bankrupt oil producers and oil equipment and developers go under the oil market will not prosper long term. The gamblers will inevitably pay the price and the companies that couldn't make a profit at $70 a barrel are destined for a very bad future. All in all Exxon was right not to go for the gusto when oil prices rallied past $70 a barrel and they still produce oil the cheapest of any US producer. Likewise, they will gain a windfall in their processing business despite bad analysts decrying their investment in this field as bad.

Listen to logic and reasoning, not the analysts and public opinion. As for the attacks on Exxon for not being green enough, the real problem for environmentalists is not Exxon but the low oil prices which they aren't complaining about as they drive around and heat their homes. Green energy thrives in higher oil prices and does badly in low oil prices. They should focus on this more than making a hoopla about companies meeting the needs of consumers.

Howie Sandberg 2 months ago Member's comment

Excellent analysis.