Crude Oil Bottoms and Blues

crudeoilGary Christenson:  Crude oil prices have dropped from about $106 in June of 2014 to briefly under $30 in January of 2016 – down about 74% peak to trough. This appears to be an on-going disaster for oil companies, the banks who loaned money to frackers, oil exporting countries, global stock markets and others.

Conventional wisdom suggests that crude oil prices will stay low for a long time because of low demand (global recession), huge supply (Iran, fracking, etc.), decline in commodity prices globally, and at least ten more reasons.


But crude oil prices have crashed before and then rallied. Examine the following chart and the 4 step sequences shown.


Note the following “1” to “2” down legs shown on the chart. They are:



Note that crude oil has crashed before, and probably will again. But it has also rallied after crashes and probably will again. Note the following rallies:



There have been several substantial rallies from deeply oversold conditions over the past 30 years. At each of those lows I think there were many good reasons why crude oil had crashed and would stay low for years — just like now. And yet crude oil prices rallied, in spite of those many good reasons.

What about Cycles in Crude Oil Prices?

Note that in the graph above the #2 bottoms have been circled with green ovals. Examine the next graph with the 88 month cycle lows shown with green ovals. The bars are compressed slightly more but the #2 bottoms are the same.


There have been six important crude oil bottoms in the last 30 years. Five of those six important lows occurred close to the 88 month cycle bottoms indicated by green ovals and purple vertical lines. The low in 1998 was mid-cycle.

The green ovals and vertical lines as drawn indicate a crude oil price low is due about now. Given that the cycle is 88 months long – more or less – that probably means the low is due in anytime in 2016Q1 or 2016Q2, and perhaps it has already occurred.

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