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Here's why crude oil could get even cheaper
Started:August 4th, 2014 (11:17 PM) by kbit Views / Replies:141 / 0
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Here's why crude oil could get even cheaper

Old August 4th, 2014, 11:17 PM   #1 (permalink)
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Here's why crude oil could get even cheaper

Oil prices are near their four-month lows. But could they get even lower than that?

With recent tensions in large oil producers Iraq and Libya plus natural gas powerhouse Ukraine, one would expect the price of oil to spike. Instead, a barrel of West Texas Intermediate (WTI) crude oil is trading at $98 per barrel, a price not seen since March.

According to two oil-watchers, the price of oil may be headed even lower.

“The fundamentals would support a much lower oil price,” said Gina Sanchez, founder of Chantico Global. “We’re looking at a very well-supplied if not potentially oversupplied market.”

Although Iraq is facing a wave of political violence, the country has actually been turning up the pumps, notes Sanchez, a CNBC contributor. And they’re not the only ones. Libya, another country in turmoil, is also upping its output. Plus, there’s the United States ratcheting up its oil production.

“We have an oil shale boom going on in the U.S.,” Sanchez said, adding, “Iraq is up to their 30-year high after they’ve been rebuilding.”
But trading oil has been a difficult proposition since the start of 2014, according to Richard Ross, global technical strategist at Auerbach Grayson.

“It’s flat on a year-to-date basis,” said Ross, a “Talking Numbers” contributor. “There’s really no trend in WTI.”

Ross notes that oil has traded more or less in a range between $98 and $105 per barrel since the start of 2014 with one exception.

“Back in June, we had a false breakout above that resistance on some of these geopolitical fears,” Rosssaid. “But somewhat counter-intuitively, we’re right back at the low-end of that trading rage testing this key support. If we break down below this $98 level with a little authority, I think we’re look at low $90s - $92, maybe even $90 a barrel.”

Yet Ross believes it’s just a little too early to get bearish on crude oil. “We’ve gotten burned before,” he said. “You don’t want to lean too heavily when any instrument – a stock or a commodity – is sitting right on this key support.”

But Ross’ $90 price level isn’t beyond the realm of possibility as far as Sanchez is concerned. “We’re looking at a potential glut here,” she said. “That means that oil prices should be quite substantially lower than they are today. So I think $90 is very reasonable.”

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