Oil Drops As Deflation Tightens Its Grip

Crude Oil Tumbles in New York as Equities Slump on Debt Crisis

By Margot Habiby and Mark Shenk

May 20 (Bloomberg) -- Crude oil in New York tumbled to the lowest level since July as equities fell on concerns Europe will struggle to contain the sovereign-debt crisis.

Oil tumbled as much as 8.1 percent as French Finance Minister Christine Lagarde said countries that share the euro need greater coordination. The index of U.S. leading economic indicators unexpectedly fell in April, and the most Americans in a month filed applications for unemployment benefits.

“Everyone’s wondering why oil has fallen $20 in less than a month,” said Adam Sieminski, chief energy economist at Deutsche Bank AG in Washington. “It’s a shift in sentiment about the economy. The Europeans are in trouble and the U.S. economic data is mixed.”

Crude oil for June delivery dropped $1.94, or 2.8 percent, to $67.93 at 2:11 p.m. on the New York Mercantile Exchange. Earlier, it touched $64.24, the lowest level since July 30. Prices have slumped 22 percent since reaching a 19-month high of $87.15 on May 3.

June futures expire at the close of floor trading today. The more-active July contract retreated $2.22, or 3.1 percent, to $70.26 a barrel. Prices pared losses after the euro rebounded. The common currency gained 0.7 percent against the dollar to $1.2496 from $1.2415 yesterday.

Germany’s unilateral ban on some bets against government bonds and financial institutions triggered a flight from equities yesterday. The euro touched a four-year low yesterday, reducing the appeal of commodities as an alternate investment.

“It’s not just current supply and demand that determine prices,” Sieminski said. “Investors are looking at the future, and the outlook has changed. The second half of the year could be tricky.”


Do you remember this post from March?

Crude Projection

We expressed the idea that Crude Oil would likely fall below $60 per barrel based on supply outlook.
It subsequently rose to $87 per barrel a few weeks ago, and is now plunging, moving far below the 200 day MA.  Even a disruption in the oil supply is unlikely to restore it to the $80 and $90 projections some analysts were making only 2 weeks ago.
Once the 50 day MA crosses the 200 day MA, a death cross for Crude will once again appear, and the media will begin to take note.

This is a highly deflationary indicator.