How about the price of crude? It's now down 40% in six months! The oil biz has been knocked on its ass as a result. The oil stocks have been taken behind the shed and beaten with a stick, losses of 20-40% in market cap are common. The fallout (good and bad) from the drop lead in all directions. It might even extend to politics.

The forces that have brought us the big drop have not gone away – the market is looking at an array of factors that could lead to still lower prices. The principal issue is supply – there's too much oil around in the spot market, the future for global supply has been tipped by American/Canadian production. What's next? Assume this scenario plays out:

In January of 2015 the new Congress passes a Keystone Pipeline bill. The law then goes to Obama for his yeah or nea. Obama says he will consider this important matter and will make a decision in a matter of days. There is uncertainty as to the outcome. The operating assumption is that O will go through with his oft made veto threat. 48 hours passes – and then this headline  hits the DJ tape:

Obama signs Keystone Bill – Seeks “compromise” on other issues.

Okay traders – What's your knee jerk reaction? Do you sell or buy WTI on the news? How about Brent? Hit the bid or take the offer? Better yet, how do you think the Algos will react?

Me? I think the headline is, (short-term), bearish for crude. The quick read on this is, “Jeepers! More supply!”

The Keystone Pipeline will not influence supply and demand for a few years. But after that, there will be more global supply of refined products and direct exports of Canadian crude that has not been ‘commingled' with US crude. The knee-jerk market reaction of ‘lower on the news' is probably a correct read of the future.

 Agree with that? If so, where does that take us? Say the ‘Keystone news' results in another 10% leg down in crude. Where does that take us?