How Low Can Crude Oil Price Fall? Is This The Start Of Another Credit Crisis?

Crude Oil price is now hovering at its 4 years low. Crude oil price has now fallen to $65 per barrel and market analysts are expecting the price to fall much more. Some market analysts are predicting another possible 25% fall in the crude oil price. OPEC may be trying to cause pain for the U.S. shale drillers, but it’s providing a holiday gift for consumers, with another 25-cent drop in gasoline prices possible by Christmas.

This collapse of crude oil price is sending shivers through the market. Some market analysts think that the collapse of crude oil price can become the catalyst for another credit crisis. It’s not just the Saudis who could get much poorer from the oil price free fall.

Everyone could suffer if the collapse triggers a wave of defaults through the high-yield debt market, and in turn, hits stocks. The first to fall: the banks that were last hit by the housing crisis. Why could that happen? Well, energy companies make up anywhere from 15 to 20 percent of all U.S. junk debt, according to various sources. Shale stocks have been hit hard. Energy stocks are getting pummeled by the market. If you had traded crude oil, you could have made a lot of money by now. The downtrend started in June when the price started falling from $107 per barrel. In the past 6 months, price has fallen to $65 per barrel. Add another 25% drop in price by the end of next month before Christmas and you can well imagine the amount of profit you could have made. Downtrend in the oil market can last many months.

A grand experiment has begun, one in which the cartel of producing nations — sometimes called the central bank of oil — is leaving the market to decide who is strongest and how to cut as much as 2 million barrels a day of surplus supply.

“We’re in a very nerve-wracking environment right now and will be for probably the next couple of years,” Jamie Webster, senior director for global crude markets at IHS, said yesterday in a phone interview. “This is a different game. This isn’t just about additional barrels, this is about barrels that are going to keep coming and keep coming.”