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$50 bbl Crude Oil

JEF, USO, CVX, XOM

A really good way to assure that the American consumer has more money to spend a deep fall in the price of Crude Oil which will drive down the price of gasoline at the pump.

After trading up to $110 bbl in the Spring, West Texas Intermediate WTI closed Tuesday at $88.03, a 20% fall.

Pump prices for gasoline that rose to $4 gal are now at or below $3 gal in some parts of the USA. Some analysts are saying now that Crude Oil could fall to $50 bbl and lower.

The price of Crude Oil trades are usually on the headlines of the day as is with the Fiscal Cliff.

The mention of an agreement between the White House and Republicans and the price of Crude Oil goes up. Stalemate in the talks the price goes down.

The fact is that solving the Fiscal Cliff problem has nothing to do with supply and demand of Crude O, but it provides a reason for the volatility.

Analysts at Bank of America Merrill Lynch NYSE:BAC predicted just last week that Crude Oil could fall to $50 bbl in the next 2 yrs. Citing the increase in domestic production from the vast US shale deposits, they even went on to speculate the US government may have to approve the exporting of WTI to help production stay at current levels.

The Big Q: does $50 Crude = $1.50 gal gas?

The Big A: No, not necessarily, and that is mainly because Crude Oil from American shale deposits makes up just a small portion of the Crude Oil used to make gasoline, the analysts say, and prices of other types of oil, including Louisiana Light Sweet, Alaskan North Slope or Nigeria’s Bonny Light, trade at a premium to WTI.

Analysts from Jefferies (NYSE: JEF) Bache division stress that the $90 resistance mark for the Feb contract will be challenged, and they maintain that an oversupplied market will continue to limit gains and expand the spread to Brent. Although, the EURs 7-month’s highs provide a tailwind for gains as Crude Oil is priced in USDs, increased supply is the limiting factor.

Investors in the United States Oil Fund (NYSEMKT: USO), Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX) and others have a lot to lose.

The United States Oil Fund has some 43.5-M units outstanding. Exxon Mobil has a market cap of $408-B, the 2nd largest of all US companies.

Chevron is not a small player, with a market cap of more than $215-M. If these were to fall 40% or so it would be disaster for investors.

A “Wild Card” that analysts cannot incert in to their models is geo-political chaos.

Despite the fact American production has increased and the majority of our imported Crude Oil comes from Canada and non-OPEC countries, the Middle East is always on edge it seems.

With Egypt, Libya, Iraq, Syria in question the markets are focused on situations in those countries.

The ultimate flash point remains Israel. If Israel is attacked by Iran, or vice versa, all supply arguments are out the window.

Some experts estimate the price of oil could skyrocket by several hundred dollars a barrel. Likely, perhaps..