Since October we at Classiarius have been writing about the explosive nature of the US shale business. We have spent hours reading the works of and engaging the likes of oil gurus and their advice and predictions have been spot on. The US production, the competition that includes the US, Russia and Saudi Arabia along with the breaking up of OPEC (this organization has seen better days) and its inability to control its members, as well as the fear of slower economic growth, all point to lower oil prices. However, we now have a target level.
The decline of global stock mark and crude oil prices point to the exodus of investor flow from these markets and into gold and government debt. The selling of global risk assets on Christmas Eve forced oil prices to collapse. Oil has fallen 45 percent from its 52-week high at the start of October. Brent has fallen 42 percent in that same period.
Brent fell 11 percent last week while the US version fell making it the worst weekly performance in nearly three years. There has been increasing financial strain on emerging markets. Combine this with the fear of trade tensions getting worse – they will in our view – and the outlook for the global economy is questionable. The US and China, both likely seeing a slowdown in economic expansion, will be our key points of focus here at Classiarius. We see the growing possibility of a slowdown and the result being much less oil demand.
So with US crude falling 6.7%, and settling at an 18-month low of $42.53, the levels to cover shorts (just a viewpoint) is $31 per barrel.