The Case for $50 Oil

Today I watched with morbid fascination as the price of oil hit a 21-month low of $59.10 only a few hours after trading above $65. The amusement came from the market’s realization that China’s $586 economic stimulus plan wouldn’t do squat to prop up weakening demand for crude.

Oil prices had also been supported two OPEC members who hinted of a second emergency meeting to talk about production cuts.

As currency trader Jack Crooks has told me over and over again, “Don’t listen to what others are telling you about the markets; listen to what the markets are telling you.” That mantra rings true today, and a good example is crude oil.

Today, crude oil broke below long-term support near $61 a barrel, and the market is telling me it’s likely to test intermediate support near $50 a barrel in the near future. Take a look at the chart, and you’ll see what I mean:

To me, it seems clear that oil has more room on the downside and it will at least test $50 a barrel as global demand dries up in the face of the worst financial crisis in decades.

John Burke, analyst

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