Crude oil sold off in what has become an epic collapse and approaching the price area where shale output could be in trouble. After weeks of oil failing to see substantial draws in U.S. inventories, demand fears and technical pressures began to build. The selloff in part was because of the return of OPEC members in Libya to the marketplace and the fact that while OPEC said they would extend their production cut, it was unlikely that it would be expanded.
Of course, the increase in Shale production is one reason for OPEC failure but the shale producer may be soon a victim of its own success. We saw that the last time oil fell below $44 per barrel shale rigs started to come off. At that point, cash-strapped shale producers deep in debt may start to reduce output.
Oil needs to hold above $44 or get ready for another shale contraction. If oil stabilizes and we finally start to see signs of supply tightening then we are looking at a bottom. The $44 level is the key. The market is way oversold so we should see a recovery, if not get ready for a shale market breakdown.