Tech musings:-

I have been maintaining a bearish view on crude oil since last year.  In my last update on Crude oil on 16^th November 2013 I wrote, “Crude oil moved up to 115 levels and has crashed to 93 from there. I still believe that crude oil will close the year below 100 USD level and see a sharp correction in next year. The target for Crude stays at 70 dollar.”

Crude oil indeed closed the year below 100 levels and has corrected sharply in the first nine days of 2014.

If we look at the given chart of Brent Crude we can see that it is forming a evening star in a yearly chart. The impact of this pattern is going to be profound and I won’t be surprised if Brent crude sees more than 30% correction in current year.

Similarly the second chart is a yearly chart of WTI crude. WTI crude is having a strong support at 87 – 90 levels. Once this level is broken I am expecting WTI to fall upto 70 USD levels in current year.

Some thoughts:-

We may be witnessing the start of a long term bear market in Crude oil. The shale gas revolution in US will turn US form largest importer to a net Exporter by 2015 – 2017. This is nothing short of a miracle achieved in less than a decade of shale gas exploration. 

Similarly shale gas is available globally and exploration of shale gas in next 6 – 10 years will reduce import demand substantially. 

Secondly reduction in geo-political tension between Iran and US will add another 2 – 4 million barrels per day in supply in next few years. 

Lastly, I firmly believe that the price of natural resources like Crude does not depend on aggregate demand and aggregate supply but on marginal demand and supply. Once the marginal demand for crude will fall the price of crude will correct disproportionately. For example if the demand for crude falls to say 80 million BPD from current 86 million BPD it may cause a 30% or 40% crash in oil prices.