Oil is on a course to test its $42 lows from March, as I’ve said it would. And the way it’s been falling lately, I wouldn’t be surprised if it happens in the next couple of weeks.

There are several ramifications to this. In the long-term it will devastate the global economy as shrinking demand wipes out oil players and oil jobs around the world. But in the short-term it will affect the U.S. more, possibly more than any other country – striking a death blow to the fracking industry, specifically because it’s become such a staple of our bubble economy and recovery.

Many are quick to think that since oil bounced back in recent months it will do so again. We did say it would bounce, and it did just that – bouncing back to $63, right in our target range of $62 to $74.

But I don’t expect it to bounce for long this time around. And John Kilduff from Again Capital, who will be speaking at our Irrational Economic Summit in Vancouver September 10 to 12, shares our view.

That’s because the world is quickly becoming a different place. The bubble euphoria investors have enjoyed since 2008 is showing several signs that it cannot continue.

And since the fracking industry is one of the highest cost producers and nothing more than a mirage created by QE economics, it might well be one of the triggers for what could become the greatest crash of our lifetime

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Fracking had been around for awhile before it really took off in the last decade. Its large upfront costs had made it impossible for it to become a leading player in the oil industry.

But the zero-interest rate policies launched by the Fed and other central banks suddenly caused junk bonds to drop to more affordable levels. Yields that were once 10% fell to 5.5%. So the frackers swooped in, jolting their industry forward like a shot of crack cocaine straight to the heart.

Along with the global economy, QE propped up the oil industry – lifting it off its 2008 low of $32 (which would’ve been much lower if QE hadn’t come into the picture) to the early 2011 high of $115. Fracking could exist in that environment.

At today’s prices, it can’t.

I don’t know how else to say it – without QE, it’s a mirage. An illusion. Totally artificial!

And like the trillions that are about to disappear from the world, it’s like magic. Now you see it, now you don’t.

The way oil prices are falling – and the way the global economy is displaying greater signs of weakness – you can bet that fracking is doomed! Its breakeven cost is around $65 – and between $55 and $80 for most producers.

That’s to say nothing of profits and long-term sustainability as a business! With oil below $42, frackers have no hope… and a mountain of debt they can’t repay.

Beyond that, there are two key reasons oil will not return to the more profitable mark of $80-plus for at least a decade. Kilduff and I agree here as well.

There is no government or central bank supporting the fall of oil like they are stocks and bonds. Saudi Arabia, the largest producer which also pumps oil the cheapest, is hell-bent on wiping out its competition by churning out more and more oil to feed the supply glut.

They will stop at nothing to achieve this – and since they don’t see the huge falloff in demand ahead that we see globally, the Saudis will keep pumping even at the expense of their own government budget.

The other reason is that when all this global stimulus starts to unravel, demand for oil will fall at an unexpected rate. We’re talking $30 by Christmas time, as Kilduff said on CNBC Squawk Box recently. I’ve been saying $32 by late January, but John is the ultimate expert in this sector.

That said, it’s very possible and likely that oil could bounce after touching a $30 to $32 bottom in the months ahead – once fracking stops adding to the supply glut.

You’d be surprised just how big a contributor this industry has been to this bloated oversupply in oil. Just look at how many rigs belong to fracking or “horizontal” drilling:

Number of Oil Rigs in US by Type 1991 to 2014

That should make it very clear that the death of fracking will wipe away most of the oil supply and return it to more ordinary levels. And it will crush the American energy industry.

But the larger issue is what follows: a greater global slowdown that’ll unfold in the latter part of this decade. That will absolutely crucify global demand for oil!

That’s why I’m working on the September issue of Boom & Bust right now. In it, I will show you why fracking is dead.

Governments won’t see this coming – not ours, not Saudi Arabia’s. Central banks will be kidding themselves if they so much as try to stop it. They can’t buy oil with any credibility as they have their own “safer” bonds. This is one free market force that will shoot to kill.


Follow me on Twitter @harrydentjr

Harry Dent
Harry S. Dent Jr. studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of his chosen profession that he turned his back on it. Instead, he threw himself into the burgeoning new science of finance where identifying and studying demographic, technological, consumer and many, many other trends empowered him to forecast economic changes. Since then, he’s spoken to executives, financial advisors and investors around the world. He’s appeared on “Good Morning America,” PBS, CNBC and CNN/Fox News. He’s been featured in Barron’s, Investor’s Business Daily, Entrepreneur, Fortune, Success, U.S. News and World Report, Business Week, The Wall Street Journal, American Demographics and Omni. He is a regular guest on Fox Business’s “America’s Nightly Scorecard.” In his latest book, Zero Hour: Turn the Greatest Political and Financial Upheaval in Modern History to Your Advantage, Harry Dent reveals why the greatest social, economic, and political upheaval since the American Revolution is on our doorstep. Discover how its combined effects could cause stocks to crash as much as 80% beginning just weeks from now…crippling your wealth now and for the rest of your life. Harry arms you with the tools you need to financially prepare and survive as the world we know is turned upside down! Today, he uses the research he developed from years of hands-on business experience to offer readers a positive, easy-to-understand view of the economic future by heading up Dent Research, in his flagship newsletter, Boom & Bust.