Price of Crude Set to Plunge

Crude oil prices appear primed for a nearly 30% collapse, implying that the global economic slowdown is starting to take hold. Our minimum downside projection for August Crude, currently trading for around $80 a barrel, is $55.69. That target was derived using our proprietary method of technical analysis and would imply a decline of 27% from current levels. Please note that this is our minimum bear-market price objective and that crude’s ultimate bottom could be significantly lower. How much lower? If the “Hidden Pivot support” at $55.70 were to give way easily, we’d infer that quotes as low as $35-$40 a barrel impend.

That might be viewed as great news by the mainstream media, since it suggests that gasoline prices are headed below $2 a gallon. But that’s like saying a nuclear detonation in midtown Manhattan would be great news for apartment dwellers because it would solve everyone’s cockroach problem. CNBC’s “experts” seem to think that a mere softening of crude prices would act as a kind of tax-cut stimulus for the U.S. economy. But softening is not what we foresee — more like a deflationary bust in a key global commodity to which huge swaths of financial assets are tied. And although we’ll concede that more travelers will hit the roads this summer if gasoline prices fall below $3, the gain in tourism dollars would not be much of an offset to the global economic collapse that appears to be gathering force.

Summer of ’87?

At this point, it looks like a perfect storm. Europe’s economy is about to go into a recessionary free-fall, China’s slowdown is looking increasingly like a hard landing, and the U.S. is at cliff’s edge on jobs, income growth and consumer confidence. Statistically speaking, all are fading so fast that it seems clear the Great Recession’s dead-cat bounce is just about over. In the meantime, we should expect Wall Street and its news-media lackeys to keep stocks buoyant for as long as possible so that the rubes – including widows, pensioners and Baby Boomers desperate for yield — can be enlisted as bag-holders before the boom drops. We have our doubts that DaBoyz will be able to keep this shell-game going till August, as they did in 1987. In fact, it’s possible that early May’s highs in the broad averages will come to be seen as a top equivalent to the one 25 years ago that preceded the October Crash.

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