As Oil Crashes Under $40, How Much Further Can It Drop

Tyler Durden's picture

Well that escalated quickly. Having toyed with the $39-handle yesterday, this morning's plunge has erased those stops:

 

... and WTI is set to test the early April lows on the way back to 2016 lows...

 

What is next for oil now that key support is broken?: some thoughts from BofA's chief technician, Paul Ciana:

Oil has reached the triangle top target (40.80) we reported on in early July. Today oil is extending its decline, breaking the 200d SMA and testing support at the round number of $40. Short term measurements shown in Table 1 and Table 2 suggest oil could bounce this week (as much as a 65% possibility) and test resistance at $43.18 or $44.50. However that bounce may be short lived and we think sold. The weekly chart shows momentum isn’t oversold yet and deeper Fibonacci retracement levels at $38.86 and $35.84 could be reached as a larger oil market bottom pattern forms. Oil in the mid $30’s which is near the 61.8% retracement and bottom of the weekly Ichimoku cloud would be a more technically convenient long trade scenario.

 

Price action has moved to the center of the weekly Ichimoku cloud. The cloud offers support as low as $35.40 and resistance at $44.32. If price were to reverse higher between here and the bottom of the cloud then we could see a potential head and shoulders bottom forming. If the decline were to accelerate lower and break the bottom of the cloud, then a double bottom pattern could form.

 

The below chart shows crude oil’s five, ten and thirty year average trend normalized to the start of the year and compares it to the current year in black. The pressure on crude oil prices is generally down from August through early December giving plenty of time for a right shoulder or double bottom to develop.

 

* * *

Finally, why is the breach of $40 important? We go back to what Marko Kolanovic said in the remainder of his note earlier today:

While US momentum is positive across the board—and S&P 500 exposure of CTAs likely is at record level—negative momentum in Europe and Japan require a short position in these equity markets. CTA signals for oil recently turned from strongly positive to moderately negative. This has contributed to past-month divergence between S&P 500 and oil (~1.5 standard deviations) and is closely monitored by equity and high yield credit investors. It is our view that the risk of CTAs significantly increasing oil shorts over the next 1 month is low. For oil momentum to further deteriorate, oil would need to drop to ~$30 at which point the medium term momentum (strongest signal) would turn negative and trigger selling.

Look forward to today's API report to add to the volatility.

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CoastalCowboy's picture

Very good news for my V8.

jewish_master's picture

vay bad news for Elon mask and his fed financed giga planet

greenskeeper carl's picture

It never went below 25 before, which is what I called long ago. I stick with it.

83_vf_1100_c's picture

   We will see $1.65 minimum wage again.

FGH's picture

The price of oil may go higher or lower.

But I don't know which it will be.

Will it go down faster or slower

Let's wait and see.

Trying to guess?

Then your portfolio's a mess.

HowdyDoody's picture

How much further can it drop?

As far as necessary to bankrupt Russia. (or so the financial geniuses think).

 

 

IronForge's picture

While the Frackers continue to go under and fold.

Of course, KSA will buy most of those up...

Rich Stoehner's picture

Cheap oil is not correlated with gas prices.

Bunga Bunga's picture

but but but they said on TV that cheap oil is so good for the consumer.

Government needs you to pay taxes's picture

Until they said the evil oil glut was bad for the corpocrisy.

JuliaS's picture

Property taxes aren't correlated with property values either. As Michael Badnarik says, taxes may as well go up because your hair is brown, you're wearing a shirt and it's Tuesday.

Son of Loki's picture

$22 is what some are predicting....I'll have to read my chicken's entrails before i square an opinion on this.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Son of Loki Aug 2, 2016 11:23 AM

I'm vegan so I read tea leaves...

El Vaquero's picture

Chicken entrails are as good as anything.  The Fed helped break the oil market and put oil into a world where it can be both too expensive and too cheap at the same fucking time. 

Itshappening's picture

Now is a perfect time for you goy to invest in my oil drilling business in Texas. It even comes with a free cowboy hat. You'll be just like Daniel day Lewis in the movie "there will be blood". No refunds.

UndroppedClanger's picture

Long... straws? (ba-dump shiii)

 

I'll get my coat.

Goldbugger's picture

$35 then a bounce up from there. More rigs closing.

Bunga Bunga's picture

That's an equation without demand.

BandGap's picture

This might put oil out of business, thermodynamics be damned.

https://www.sciencedaily.com/releases/2016/07/160728142921.htm

cheech_wizard's picture

Now if it weren't for the hundreds/thousands of other products made from oil, you might actually be onto something.

Standard Disclaimer: If only the entire world converted to an agrarian lifestyle consisting of subsistence farming, we can usher in that utopia the socialists dream of.

Thoreau's picture

Hemp can replace most of that shite... and as for your petroleum jelly... well, you know where you can stick that, lol!

cheech_wizard's picture

So agrarian it is then. Hemp fields as far as the eye can see. 

BTW, aside from the fact that unless you provide evidence of your claim, I'd say you're the one in need of the KY-Jelly. BTW, "most" is not "all" so get busy and start working on it.

Standard Disclaimer: Having a side by side comparison chart (with the associated manufacturer's names) would be most helpful in substantiating one's claims.

BandGap's picture

Once reduced the product(s) from this catalysis have the potential in all sorts of uses.

Think about it, chlorophyll takes CO2 and converts it into cellulose, for example.

Madcow's picture

You don't need oil when the planet is living in caves under Sharia law running around chopping each other's heads off with no food or water. 

Watch what happens to "asset" prices when the West has converted to cannibalism.

cheech_wizard's picture

This is the first time I've actually seen the term "ichimoku cloud"... Ok, I just did my research, does anyone use this, and/or how accurate is it? 

Standard Disclaimer: Trying (in vain?) to steer the conversation back to a more financial oriented discussion. 

Jethro's picture

Now I'm intrigued...Off to Google.

OK, now I want some more chart porn with ichimoku clouds

August's picture

We don't need no steenkin' financial oriented discussion.  Joos!

MASTER OF UNIVERSE's picture

Oil will go to $20.00 per barrel or lower as GS consolidates their holdings to amass the Lion's share of the market. GS wants all the small firms to die a horrible death ASAP.

TradingIsLifeBrah's picture
TradingIsLifeBrah (not verified) Aug 2, 2016 11:22 AM

Slippery when wet!

Senduko's picture

Someones trying to bring Saudi to its knees. 

Yes We Can. But Lets Not.'s picture

Don't they do that on their own several times daily?

Jethro's picture

Anecdotal evidence over the last month around here is that many small oil companies were scrambling for various services as oil headed north of $45. Some of my bigger clients are still spending some money, but probably will regardless of what the oil price does---unless it drops precipitously. Like Cheech said, oil is used for all sorts of stuff, not just powering engines, and there is a consumption rate, based on market demand for various consumables. And, even if people largely stop spending money on non-essential items, there will still be a baseline consumption of oil-based products.

atmasko's picture
atmasko (not verified) Aug 2, 2016 11:36 AM

"As Oil Crashes Under $40, How Much Further Can It Drop"

OR

How low can putins pants and RUB drop? Huh? :D

Bunga Bunga's picture

Even Hitler could not conquer Russia nor will do it $10 oil.

LawsofPhysics's picture

Putin sells to whom again?  China happy to buy. fuck the E.U. and the west  right?

Good luck with that!

Chippewa Partners's picture

Ichimoku Cloud reminds me of Ralph Acampora stepping out of the "vault" when he worked at Kidder Peabody.

silverer's picture

Time to make Earl free. "Quantitative Energy". Another stimulus package for productivity!

Tortuga's picture

IMO, based on 15 years in the oil industry, oil should be less than 20 dollars a barrel and gasoline less than a buck a gallon.

Fraud, corruption, and banksters-whore politicians are the only reason it isn't.

LawsofPhysics's picture

ZERO fuckers!

Zero is the answer and there is nothing less than zero, despite what these corrupt central bankers tell you.  If there were, the fuckers would simply let you print the money.

ironicmerman's picture
ironicmerman (not verified) Aug 2, 2016 1:18 PM

Hey, a market article!  Nothing good in the land of Lord Donnie today?

scraping_by's picture

Charting equities is based on several assumptions that are no longer true. There is no longer a huge number of buyers and sellers with a finite amount of money to put in or take out of the market. There's a moderate number of sellers and the Fed printing as much money as they need.

Similarly, charting oil is less informative because the market is one big seller (SA) and a moderate number of buyers in futures markets, industry, and governments. We consumers hardly count, even though it's little people money on the table.

Any time there's a buyer or seller large enough to manipulate trend lines on their own, they will.

kedi's picture

You just don't need as much oil to run an economy based more and more on financial industries shuffling, flipping, pumping and dumping. While everyone who would like to buy things of real substance, food, shelter, etc... Are maxed out on debt.

It's reaching a point where even if the Saudies and other big producers tightened up supply. The higher price wouldn't spread to cover the reduced sales volume.

Too much money is being spent on manipulating money. Paying back money with interest. Too much money is sitting in hidden piles, avoiding any chance that some of it might slip back into the system and actually end up in a consumer's pocket for a moment.

So more money is printed. And it goes zooming straight into the financial casino, and quickly is added to some stagnant pile somewhere. Bypassing any useful purpose it might serve.

I mentioned in the past that I work in the oil industry. Not anymore. Company is bust as of last week. Anyone looking for a 59 year old jack of all trades, master of some?

Publicus's picture

Retirement is hiring.

JackieG's picture

Here we go.

Dirty deeds done dirt cheap

http://www.dryships.com/pages/report.php