By Matt Insley, Daily Reckoning

Last week, the price of oil broke below $60 per barrel, representing a $40+ discount since June.

The oil market has been under siege for six months. It's been a bloodbath. And the blood is running in the streets more than ever today. From service providers to producers this downturn has been painful.

We're witnessing a true “sky is falling” mentality in the shale space. Is it warranted? Where to from here? Let's take a look…

The first caveat to today's bottom-fishing oil alert is that we've known all along that oil prices were a little toppy over the summer. In fact, when asked just how low oil prices could go I usually answered with a simple “lower than you'd expect.”

Whelp, the elevator bell just rang and we've arrived! We're officially at: “lower than you'd expect.” Heck we've got a front row seat to the blood and guts of “lower than you'd expect.” It's painful to watch from an investor's standpoint.

However, this is how markets work. Prices don't stop where you think.

“Markets always over shoot because of the emotions of investors” my colleague Greg Guenthner (CMT) reminds us.

“When investors are euphoric and a stock price is going higher bad news doesn't matter” he continues. “The same thing happens on the downside, when investors are fearful good news doesn't matter.”

The market mentality behind a bubble is the same behind a crash. It's important to remember the factors driving the crude market today aren't rational supply and demand. Instead we're dealing with emotions and speculations.

Heck, if oil prices were headed the other way today — say we were screaming to $150 a barrel – the talking heads would come out of the woodwork blaming speculators for high prices. “Blame the speculators!” Those SAME speculators (which I find no fault with) are pushing oil lower today.