Why oil prices could plummet to $ 15 a barrel

Oil prices have already taken a dramatic downturn. Last week, WTI CE collapsed under $ 42 a barrel, down $ 100 from the previous year.

One big-name investor predicted a sharp decline.

"There is no evidence as to signal that we are on the bottom. You can reach the price easier to $ 15 or $ 20," said David Kotok, founder of Cumberland Advisors manages more than $ 2 billion in assets.
"I'm an old goat. I remember when oil was $ 3 a barrel," said Kotok, whose clients include former New Jersey Governor Thomas Kean.

The big problem is that the world still has more oil than it needs, especially as there is a slowdown in economic growth in China. US energy boom that began a decade ago created a glut of supply. OPEC, led by Saudi Arabia, has been willing to balance the market by reducing production. The problem of oversupply can be strengthened by the nuclear deal with Iran. If historic agreement goes ahead, the relief of sanctions will allow Iran drastically increase production. This can cause a reaction from Saudi Arabia, Iran is their longtime rival in the region.
"The best weapon of Saudi Arabia" is the lowest price of oil at maximum volume. They have sufficient financial reserves to have a lasting effect for years, "said Kotok.
On the other hand, Iran has far less financial flexibility and need higher prices to turn a profit.

Some types of crude oil are around $ 20

Oil of $ 15 may sound crazy, but some types of black gold are now approaching those levels. For example, variety Western Canadian, heavier type of oil that is more difficult to refine, is currently traded in the range $ 20. If history is any guide, seasonal forces may also begin to push prices. At the end of the summer driving season tends to weaken energy demand, dragging prices down.

All this is why Kotok warns investors to stay far away from oil reserves. This is an oil war, "said Kotok.