Crude oil futures for delivery in January 15 [CLF15.NYM] were traded today on the New York Mercantile Exchange as low as U.S. $54.04 per barrel, a drop of over 4% from the previous close, after Saudi Arabia’s Oil Minister Ali al-Naimi characterized the steep decline in crude prices as “temporary” and that crude demand would recover as the global economy improves. 

The market interpreted his comments as a signal that the Saudis will not cut their output. Mr. Ali al-Naimi’s comments seem to echo what Russian Energy Minister Alexander Novak said yesterday that Russia will not cut output in 2015, despite the ruble’s turmoil.

Earlier this week, the International Energy Agency (IEA) cut its 2015 demand forecast for the fourth time this year as growth in global demand for oil next year will be only 92.32 million barrels per day, just over 880,000 barrels per day more than this year’s demand. The agency has also warned of a 300 million barrel increase in inventory that has built up in storage tanks across Europe and North America.

Yesterday, Chevron Corp [NYSE:CVX] put their plan to drill for oil in the Beaufort Sea in Canada's Arctic on hold indefinitely because of what it called "economic uncertainty in the industry". Marathon Oil Corp, BHP Billiton [NYSE:BHP], ConocoPhillips [NYSE:COP] and a long list of companies in the energy sector have announced a cut in their capex budgets next year, by at least 20% year over year. 

The bear argument is that the crude oil prices may be supported by crude oil futures and options out there that have not yet expired. Most of the traders believe that the crude oil prices may bottom at around U.S. $45 per barrel sometime next year. Nonetheless, it is possible that the crude oil prices could breakdown and retest the 10-year support at ~ U.S. $40 per barrel if global deflation, and the glut in crude oil, persists. 


The 61.8% Fibonacci retracement level is a big warning sign that a major trend change in the market is coming. As crude oil prices are now well below U.S. $66.84 per barrel, or the 61.8% Fibonacci retracement level, the only sign that crude oil prices may hit the bottom is when the price stops falling. 

As of December 18, 2014, the options prices quoted for CME crude oil futures January 2015 through December 2015 are between U.S. $54.58 and U.S. $58.44 per barrel. The markets may be signaling that the falling price of crude oil is not transitory or temporary, and cheap oil may stay here for longer than people are thinking.