Where's the Bottom for Crude Oil?
Over the last three trading sessions alone, crude oil has lost over $5 per barrel, or approximately 6 percent of its value. So what's behind this move, and where is the bottom for Texas tea?
(Read More: Brent Crude Oil Tumbles Below $101)
Driving this move are the simple fundamentals of supply and demand. Last week, the Energy Information Administration once again downgraded its forecast for crude use around the world in 2013—and that was the third downgrade in the last few months. China also imported oil at a slower rate, which could be a sign that its economy is slowing. Meanwhile, Europe continues to struggle, and demand for Brent crude has also declined.
So while U.S. production has been strong, demand for gasoline and other crude products has been weak. The bottom line is that barrels of crude oil are starting to pile up, and that can only mean a drop in price.
However, I would be remiss if I did not mention the geo-political front, with North Korea causing the world the most stress at this point. I do not foresee a disruption in the supply of crude, or for that matter, in the production, Even if the North launches a missile, it will most likely fall into the ocean. But I did say "most likely." If the scenario is worse than this, then you could see a spike in prices, at least in the short-term.
So where is the bottom in crude? The next support area I see is at $88 to $87.50. Under that, there is strong support at $85.50 to $85.
Crude could soon correct because its drop has been so fast—but after that, a test of these areas seems probable.