Here’s Why Oil Will Fall to $15 a Barrel

short-oil-etfWith the oil price rebound in jeopardy, an analyst from EconMatters recently made a huge bearish call, and his argument makes perfect sense.

The analyst currently sees two scenarios for black gold:

Scenario 1: Oil Recovers by Q4

This scenario necessitates that we’re already pricing in the end of summer driving season six weeks ahead of time. If that’s the case, then we’ll likely see some supply rebalancing in the third quarter, with oil possibly testing $40 a few times. Then, by Q4, we’d see a real recovery.

For this to happen, however, we’d need to see big drawdowns in gas without having big build-up in crude. That would mean a period of sustained lower production.

Scenario 2: Oil Crashes all the Way to $15

This scenario entails a historic crash in oil prices, and that the pullback from a yearly high of $54.91 to $42 and change is only the beginning.

This is the scary one.

This would mean that we’ve been really oversupplied for the past ten years, and possibly longer.

This would mean that we don’t even realize how oversupplied we are — we’re just so used to being way oversupplied.

This would mean that oil could crash all the way down to $15.

This would mean that production would have to be cut considerably, and many oil companies could go out of business.

This would mean that oil companies would have to hold huge short positions in oil.

And this would mean everyone would have to re-think their idea of what an appropriate supply of crude oil looks like.

The United States Oil Fund LP ETF (NYSE:USO) fell $0.02 (-0.20%) to $10.06 per share in premarket trading Wednesday. The USO, which is the most popular way for investors to make a bullish bet on oil prices, has fallen 8.36% year-to-date.


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