Crude bear market: History says oil prices can fall another 10%

  • When crude oil falls below $50, it tends to stay down, and a negative trend in the S&P 500 follows.
  • WTI crude has declined 20% in the past month, and it could shed another 10%, based on history.

WTI crude dipped below $50 per barrel on Monday, the first time oil dipped below that level in more than a year. Oil prices are now in bear market territory compared to their previous 52-week highs, and WTI crude has dropped 20% over the past month. Even with a bump in oil on Tuesday, don’t expect the bearish trend in the commodity to reverse itself soon, according to trading history over the past decade.

According to hedge fund analytics tool Kensho, a month after similar drops, WTI crude tends to shed another 10%. It trades negatively 60% of the time during these periods — across five instances in the past decade — which also have been hard on equities. The S&P 500 has averaged a decline of 1.6% during these one-month trading windows and posts a negative trade 60% of the time.

The trading action in WTI crude and Brent crude through Monday has been rough, as fears of the coronavirus ripple through the global economy, and China, which now represents near-20% of the world’s economy, is at risk of seeing slower growth.

WTI hit its lowest settle price since January 2019 and has been negative in nine of the past 10 sessions, settling below its 50-day moving average for the 15th consecutive day. WTI is currently in bear market territory, according to CNBC data, 24.76% off its most recent 52-week high of $66.60, hit in April 2019.

Brent had its lowest settle price since December 2018 on Monday and is in bear market territory, 27.98% off its most recent 52-week high, from April 2019. It has been below its 50-day moving average for 10 days in a row.

OPEC and Russia are considering an emergency production cut, but oil is still tanking, and the outlook for prices is getting dimmer.


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