2 Wall Street Firms See Different Ways For Oil To Drop Below $30

Two different Wall Street firms have new reports out explaining why they believe that oil prices could take a turn for the worse in the near future.

According to Bank of America analyst Francisco Blanch, OPEC is not backing down in the global oil pricing war, and a flood of Iranian oil is about to hit the market at a time when China is in the middle of a currency depreciation. These factors coupled with a wormer-than-normal winter in both the U.S. and Europe and growing crude inventories have created a perfect storm for oil bears.

“As we argued in a recent piece, a combination of factors could still drive crude oil prices into a mid $20s scenario in the very short term given the extremely high inventories,” Blanch explains.
 

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Morgan Stanley analyst Adam Longston sees China as perhaps the most important of these factors. “If rapid devaluation occurs, a 15% CNY depreciation alone could send oil into the $20s,” he writes. He adds that a 5.0 percent appreciation in the U.S. dollar could produce up to 25 percent of downside to crude prices.

The United States Oil Fund LP (ETF) USO is down 47.3 percent in the past year.

Disclosure: the author holds no position in the stocks mentioned.