In an interview Thursday with CNBC.com’s “Futures Now,” the Commodities King said that a combination of a rapidly rising inventories and a strong dollar could lead to $15 oil by the end of the year.
“For months I’ve said that crude oil is heading from the upper left to the lower right of the chart,” said the CNBC contributor and editor and publisher of The Gartman Letter. “I wouldn’t be surprised if oil went down to about $15 a barrel.”
Crude oil prices have been in a steep and steady decline over the past six months, down more than 50 percent trading just above $40 a barrel. Traders had hoped an improving economic picture in both the U.S. and Europe could give crude a lift.
At the start of February, crude staged a sharp and violent rally off its lows. But according to Gartman, there simply is too much supply to contend with. As such, he expects future crude rallies to be met with a similar fate.
“That is not how a bull market is supposed to act,” he said. “That is how a bear market acts.”
Gartman said he’s looking to the crude futures market for clues on when the selling may abate. Currently forward prices for crude contracts are higher than near-term or spot prices, a dynamic referred to as contango. Futures traders say this is typically a bearish sign as it reflects an excess near-term supply. As inventories build, storage could soon become a serious issue.
“We’re going to have an abundance of crude. Storage is going to be topped out very soon and the front month spread is going to continue to deteriorate,” he said.
Gartman says until nearer-dated crude contracts become more valuable than longer-dated ones, oil will continue to slide.
“No if, and, or but about it,” said Gartman. “As [the contango] widens, your propensity, your urge, your intense and any [other] desire to be a buyer of crude will be deferred.”