Oil heading to $20: Expert

Why oil is going to $20: Global pro
Why oil is going to $20: Global pro   

A strengthening dollar and economic weakness in Europe and China could drive crude prices as low as $20 per barrel, according to Raoul Pal of The Global Macro Investor newsletter.

The dollar has been climbing recently against the euro and the yen, pushing oil prices lower and sending fear across the markets. He said crude could still fall another 60 percent before the downturn is done.

Pal said the strengthening dollar is a big part of why oil could continue to drop. "If we look back historically at how these big dollar bull markets go, I think it's going to go, using the (dollar index), at least to 125, maybe even further," he said in an interview Tuesday on CNBC's "Fast Money."

Historically the price of oil moves inversely to the strength of the dollar.

According to Pal, that relationship, along with weak demand in Europe and China, has led oil companies to put crude into storage in hopes of waiting out the downturn in prices. Crude stores in America are filling "at an incredible rate" and could be full by summer, he said, which could lead to even more dire consequences.

"Any oil that is then brought out of the ground will either have to be sold into the normal market, which will be at much cheaper prices, or they're going to have to shut down production," he said. "I think that shutdown of production is something that people haven't really thought through yet."

Pal said the impact of a large-scale production shutdown could have severe ripple effects across the industry.

"It's a classic boom-bust cycle unfortunately. So much money has piled into the oil patch over the last five, six, seven years, and much of that money is going to get destroyed."

Pal said falling crude prices could potentially even push the U.S. into a recession by the end of 2015.

"With the oil patch being so lackluster ... there's a probability that the U.S. goes into recession this year alone."