A counter-intuitive collapse in oil could see prices drop to $70 a barrel, or even $40

Thursday, September 25, 2014
By Paul Martin

Shawn Langlois
MarketWatch.com
Sept 25, 2014

Rising oil prices are one thing you can usually count on when all hell breaks loose overseas. Fear of supply disruptions is catnip for black gold. Yet here we are, with the Middle East again a hotbed of fireworks and bloodshed, and still no pulse. In fact, it’s down almost 10% over the past couple of months.

U.S. shale producers would have you believe that the surge in domestic production is taking the shine off OPEC’s dominance. True, to an extent. But it probably has a lot more to do with the fact that demand isn’t growing like it once was. The sexiest CEO in the world smiles at this notion.

Former CIBC World Markets chief economist Jeff Rubin pointed out that U.S. oil consumption has dropped to 18.6 million barrels a day, down from nearly 21 million prior to the last recession. In Europe, it has fallen every year for five years, after peaking more than 20 years ago. Even China seems not to have the appetite it once did. Hence, oil demand forecasts are getting chopped everywhere.

“If crude prices end up mimicking their fossil-fuel cousin (coal), prices could be heading as low as $40 to $60 a barrel in the not-too-distant future,” he wrote. That’s a long, long way to drop.

Our chart of the day isn’t quite as bearish, but it supposedly shows that, from a technical perspective, $70 a barrel isn’t at all farfetched (see more below).

The Rest…HERE

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