Oil Prices Breach The $50 Level, Now What???

Oil Prices Breach The $50 Level, Now What???
December 23 16:30 2018 Print This Article

Three weeks ago I wrote about oil,

Bottom Is In For Oil…For The Time Being

I think the bottom is in on oil for the time being. Last week, the buyers refused to see oil close below $50 level. Russian President Vladimir Putin said he and Saudi Crown Prince Mohammed Bin Salman agreed to extend output cuts on the sidelines of the weekend G-20 summit. Another big boost for crude came after Sunday’s announcement by Alberta Premier Rachel Notley, who said she has ordered oil companies in the Canadian province to cut production by nearly 9% next year due to a glut in Canadian oil


But then the US markets sold off in December…on course for the worst December since the 1930s amid a widespread sell-off of stocks across Europe and Asia as well. Just look at that monthly candle and the month isn’t even over yet.

Crude oil prices dropped nearly 25% in November alone, the biggest monthly loss in a decade due to record production in the United States, Russia and Saudi Arabia. In addition, the combination of a stronger U.S. dollar and concerns over a slowing global economy have caused prices to fall below $50, which was my line in the sand. So what’s next for oil, lets go to the charts to find out?

On the monthly chart, oil is about to enter the monthly demand at $42.

Many experts have said $50 oil was the break even point for the shale producers, but that is an average price point. In certain areas of the Permian, break even ranges from between $30 and $50 per barrel, while other areas need as much as $65. And when you consider wells outside of the Permian area, break even could be actually higher.

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Over the next several months, we will witness supply and demand in full effect. If oil prices stay depressed, wells will have to shutdown. This will lead to lower production levels, until demand catches up. Once demand catches up, the price for oil will rise. Once the price for oil rises, more wells will operate again. It’s a constant cat and mouse game.

But if the global economy decides to move from slowing to tanking, all bets are off and oil prices will breach the $40 level. 2019 should be another interesting year for oil.

This post is my personal opinion. I’m not a financial advisor, this isn’t financial advise. Do your own research before making investment decisions.

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rollandthomas
rollandthomas

I'm a retail investor like most of you and learning everyday, but I have been educated and trained to identified the Smart Money on the charts to pick up whatever crumbs they leave behind.

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