If you belong to the group of people concerned about dealing with crude oil priced at 0 US$ or even lower, let me tell you that this is not going to happen very soon. However, if you were reading our articles about why oil prices were going down for almost 8 years, you certainly know what we are writing since the beginning of 2015.
The crude oil price is now being impacted by multiple bearish factors, all of them making an extraordinary down pressure on the oil price. Those factors are strong structural variables directly related to different important sources, all of them responsible for the current technical downtrend.
Chart provided by MetaStock, Alerts provided by e-globalTrading.
As you probably know, the oil price is basically determined by the supply-demand balance and the US Dollar as the pricing currency.
Despite the important growth of global demand for fossil products during the last decade, oil supply was overwhelmingly increased to overcome the referred oil demand growth. At the same time, the US Dollar was a constant bearish factor for oil prices since the end of 2014, when US Dollar broke-through the 90 US$ Dollar Index area. So, both fundamentals were constantly pointing to the oil price down direction.
But, there is another factor constantly adding fuel to the oil bearish cause, the shale gas competition, as an alternative source of energy. Shale gas showed to be a much more efficient source of energy at the past price levels. This is probably the main long term reason for the oil price bleeding. At past oil prices, the oil will not be able to sustain long term competition against shale gas.
Alternative clean sources of energy are also an important long term bearish factor for oil prices, reducing the long term oil demand.
Technology is another bearish factor for long term oil prices. The continuous technology disruption process was regularly reducing employment, by labor participation decrease and wages reduction, which obviously impacts the consumption of energy.
Finally, COVID 19 outbreak was an extraordinary catalyzer to strongly increase the energy demand destruction process, reducing the oil demand by 30% or even 40%. This demand destruction shock and the lack of storage capacity, sent oil prices crazily down right into the 10 US$ support area, as shown below.
Now, let me talk a bit about what technics are showing on CLc1 Crude Oil monthly chart.
Chart provided by MetaStock, Alerts provided by e-globalTrading
The referred CLc1 monthly chart is showing the oil inability to trade over the 100 US$ area since 2012, and the inability to trade over the 70 US$ level since 2017. Note how the COVID 19 factor did the rest of the job pointing prices into the 16-10 support area. This is where we are right now. Is the referred 10 US$ area easy to be overcome? Not so fast cowboy!
Despite COVID sent prices strongly down to create an unbelievable situation right into the Oil June contract expiration on May 18 due to the lack of oil physical storage, oil doesn't worth 0 US$; everybody knows that. Negative prices were a direct consequence of the oil future roll-over dynamic and obviously the referred lack of oil storage capacity, making traders to pay extra money in order to avoid the corresponding physical delivery. Below the corresponding CLc1 daily chart showing the oil reaching the -37 US$/barrel.
Chart provided by MetaStock, Alerts provided by e-globalTrading
Summarizing, technical analysis are showing the CLc1 crude oil developing a descending bearish triangle, into the 0 U$S area. Obviously we don't know when the descending trending line, which is the hypotenuse of the referred descending triangle, will meet the 0 US$ horizontal line. And maybe it will never cross the zero level. But remember that oil should definitely adjust its price to the constant shale gas over-supply scenario.
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