Oil prices plunged to 5 ½-year lows last month amid a glut of supply and sluggish demand. That sluggish demand shows that all's not well with the global economy, says Stephen Schork, editor of The Schork Report newsletter.
"When you have such a sharp fall in commodity prices, that's because of economic demand. And I think that's a very worrisome telltale," he tells
CNBC.
U.S. crude prices have dropped 52 percent since late June to around $51 a barrel.
"Oil prices are the canary in the coal mine," Schork states. "I don't think the global economy, especially in the United States, is all rainbows and unicorns right now."
The U.S. economy grew 2.4 percent last year, its fastest pace since 2010. Meanwhile, the eurozone economy expanded only 0.9 percent, and Japan's economy shrank in two quarters of 2014.
Oil could drop to $40 or lower before demand kicks in for the summer driving season, Schork predicts.
"In the near term we're still looking at a significant amount of supply," he noted. "Crude oil stocks in the United States are 426 million barrels. The last time stocks were this high in this country, Gandhi was Time magazine's man of the year in 1930 and most Germans still thought Hitler was a clown."
Oil has rebounded 20 percent from last month's low, but ace investor Jim Rogers agrees with Schork that the commodity may resume its decline soon.
"Whenever you have a major crude collapse like the current one, there has to be a rebound," he tells
The Economic Times. "However, normally the prices test the bottom before rebounding. I am not sure if we have seen the bottom yet."
A rally is normal. "And then somewhere along the line it peters out. Then you have another test of the bottom. I suspect we will do so this time too," Rogers notes.
"Owing to the collapse in oil prices, inflation everywhere is down. Oil may stay down for a while, or even go further down and test the lows. Maybe prices will go up by a few more dollars. But by spring this year, we will probably see a new test of the bottom."
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