Why The Oil Plunge Will Continue [Seadrill Ltd, BP plc (ADR), Chevron Corporation, Halliburton Company]

short-oil-etfLarry Edelson: The interim bear market in gold and other precious metals that I’ve been tracking for you isn’t the only bear market out there. As I warned quite some time ago, the price of crude oil would also fall substantially, down to below $70 a barrel, and quite possibly lower, before it bottoms.

Since June 19, oil has plunged from $107.44 a barrel to $67.22 as I pen this column, a $40.22 hit, an amazing plunge of more than 37 percent!


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More losses are coming for oil. In fact, take a look at this monthly chart of oil that I showed you at the end of last year, and notice how spot on my forecast has been.

Oil is now hovering just above that first major support level. Once it cracks that, oil will plunge to as low as $40.

That leg down to $40 could begin any moment, or perhaps after a short-term rally.

The crash in oil prices is hard to believe, when there are so many diehard oil bulls out there. Even more so when you consider all the political hot-spots around the world that are now causing so much turmoil.

But from a fundamental point of view, oil is not bullish. Global oil inventories are fine now; there is no squeeze in supplies.

Moreover, as we all know, the U.S. now has more energy of its own than it’s ever had.

So what is driving oil prices lower? The answer, in my opinion, is simple.

And no, it’s not some far-fetched market manipulation to bring down Putin and Russia.

Oil prices are tumbling now, and the fall will continue. But it won’t last forever.

What’s driving oil lower is the same thing that is driving nearly all commodities lower. It’s called deflation. That’s especially true for Europe. The euro region is in a freefall. Almost every country in Europe is contracting, severely. Unemployment remains sky high, threatening to move even higher.

And all across the globe, rising geo-political tensions and conflict are driving most business people and investors to play it safe, park money in cash, take risk off the table, and hoard and protect their capital and wealth.

That too is deflationary, for all but the U.S. equity markets. So it’s hardly surprising that oil — like gold, silver, copper and so many other commodities — is still in bear-market territory.

But mark my words: a new oil bull market will form from this decline.

How so, when deflation is so strong right now? When there are so many dynamic changes occurring in the oil market, with the U.S. set to become energy independent?

There are three reasons oil will soar again, after it bottoms (in 2015).

First, there’s China. While China is home to oodles of natural gas, its economy is still oil thirsty and will be for a very long time.

In fact, in terms of dependence on oil, the U.S. and China are moving in opposite directions. While the U.S. will soon be energy independent, China will soon be the #1 consumer of oil and almost entirely dependent upon foreign supplies.

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