Oil Price Crash: How low will the oil price go?
In August 2015 I gave a crude answer to that question based on history in a post called The Oil Price: how low is low? where I observed:
To get straight to the point. Brent will need to fall below $30 to match the lows seen in 1986 and to below $20 to match the lows seen in 1998.
This observation was based on deflated annual average price from BP ($2014). The notion of $20 oil has since caught on and some commentators are now speculating that $10 is possible. It is time to have a closer look at what history tells us.
This article was originally published on the Energy Matters blog.
First a look at recent oil price action.
Figure 1 Long term picture of WTI and Brent daily spot oil prices. The most recent falls have taken the oil price to the 2008 lows that technically may provide price support. But supply demand fundamentals are against that. The last time we had an over-supply based rout was 1998/99 (arrow) where in money of the day, Brent bottomed at $10/bbl. Adjusted for inflation, that is approximately $15/bbl in today’s money.
On a money of the day basis, the oil price has now reached the lows, and support level, seen in the wake of the 2008 finance crash. In detail, the support level has already been pricked and on a deflated basis, that support is already broken.
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