Oil Price Crash: How low will the oil price go?

I have been following the oil price crash since it began in late 2014, providing annual forecast scenarios and monthly vital statistics updates. There has recently been an acceleration in activity and news, and as the oil price has continued its fall to below $30, investors and speculators wrestle with the main question: “how low will the oil price go?”

In August 2015 I gave a crude answer to that question based on history in a post called The Oil Price: how low is low? where I observed:

To get straight to the point. Brent will need to fall below $30 to match the lows seen in 1986 and to below $20 to match the lows seen in 1998.

This observation was based on deflated annual average price from BP ($2014). The notion of $20 oil has since caught on and some commentators are now speculating that $10 is possible. It is time to have a closer look at what history tells us.

This article was originally published on the Energy Matters blog.

First a look at recent oil price action.

Figure 1 Long term picture of WTI and Brent daily spot oil prices. The most recent falls have taken the oil price to the 2008 lows that technically may provide price support. But supply demand fundamentals are against that. The last time we had an over-supply based rout was 1998/99 (arrow) where in money of the day, Brent bottomed at $10/bbl. Adjusted for inflation, that is approximately $15/bbl in today’s money.

On a money of the day basis, the oil price has now reached the lows, and support level, seen in the wake of the 2008 finance crash. In detail, the support level has already been pricked and on a deflated basis, that support is already broken. The fundamentals of over-supply remain and so there is no reason to believe that the oil price crash will turn at this point. Seasonally, demand for oil is always weak in the first and second quarters. This alone will work against price recovery in the near term.

The IEA OMR for December 2015

The January OMR with data for December was published today and I’ve waited to see what it had to say before publishing this post. The main headline is that global total liquids supply was 96.88 Mbpd in December, down 90,000 bpd on November. This is effectively unchanged. The IEA observes:

a procession of investment banks has  warned that oil prices “could” fall to $25/bbl, $20/bbl or, in one case, $10/bbl.

and asks the question

Can It Go Any Lower?

and concludes

So the answer to our question is an emphatic yes. It could go lower.

Recent News

  • Sanctions against Iran, as expected by all, have been lifted clearing the decks for full oil exports to resume. Recent estimates suggest an additional 500,000 bpd exports. In my Oil Price Scenarios for 2016 post I assumed 800,000 bpd additional oil from Iran. Regardless of whichever comes to pass, Iran returning to full exports makes the over-supply situation worse.
  • Saudi Arabia has floated the idea of selling a 10% stake in Aramco, the Saudi State oil company. This confirms the precarious state of Saudi finances but also Saudi commitment to staying the strategic course. They would rather sell the family silver than back down from their course towards national ruin. Personally I don’t believe this transaction will ever take place since investors will be buying into production and not reserves, in a Nation that lies at the centre of turmoil in the Middle East.
  • The Chinese stock market has crashed again and looks like it could now head much lower leaving major questions about the general state of the Chinese economy. The engine behind the commodities super cycle looks like it may take some time out for repairs.
  • BHP Billiton, with Australian roots, listed in London but with global operations is one of the World’s largest diversified energy companies with stakes in oil & gas, coal and uranium mining. They just announced a $7 billion write down on their US shale assets. With a market capitalisation of £36 billion, BHP can withstand balance sheet losses such as this more easily than the smaller shale players.
  • UK North Sea oil production is rising for the first time since 1999.
  • US oil and gas drilling rig count continues to fall steadily but not so steeply as during the early stage of the oil price crash. Below I take a closer look at the oil price crash of 1998 / 99. The chart shows that back then US operational rigs fell from 1000 to 500 before making a sharp recovery. Today, the oil+gas rig count stands at 650, not yet so low as 1998/99 but proportionally much lower since the drilling fleet size is now 2000. At least it was 2000 leading into the crash.

Figure 2 Stacked chart of US oil and gas directed drilling. The total rig count stood at 650 on 15 January, 515 oil and 135 gas. The combined rig count is still falling steeply and this must inevitably bring about more significant declines in US oil and gas production at some future date once the backlog of drilled but uncompleted wells works through the system.

The oil price crash of 1998/99

The oil price is already in irrational over-sold territory where virtually all producers are making substantial losses, be they fiscal losses in OPEC countries or economic losses in the market economies of the OECD. Longer term, the oil price must rise above the level where everyone makes money, but short term, economics is not helpful in trying to constrain where the market bottom might be. In the absence of any rational economic pointers, all one can fall back upon is what happened before during similar circumstances. The oil price crash of 2008 is not a good analogy, driven by financial crisis, that crash was ended with OPEC reining in production by 5 Mbpd. We have to go back to 1998 / 99 to see what happened during an oil market driven price crash.

In money of the day, Brent fell below $10 / bbl for brief spells during December 1998 and February 1999. Back then, WTI traded at a premium to Brent of roughly $1.50 / bbl. Today the WTI-Brent spread is effectively zero. Adjusting price for inflation using the BP deflator points to price lows of about $14 for Brent in 2014 dollars.

Figure 3 WTI and Brent daily spot prices as reported by the EIA in money of the day (MOTD).

Figure 4 Same as Figure 3 with prices adjusted for inflation using the BP deflator where $2014 = $1998*1.45. Note that the price defines a distinct double bottom. 

It is important to note that the nature of the 1998/99 price crash was different to today’s since this marked the culmination of an oil bear market that began in 1981. Today’s crash is caused by an inelastic market constrained by production volume where relative swings in supply and demand of ±2 Mbpd is causing price swings of ±$40 per barrel. The market is currently caught in the over-supply + weak demand vortex.

Once in a decade buying opportunity?

It is important at this stage to note that I am not a qualified investment advisor. All I am doing here is laying out a framework of data and information to help others reach their own decisions.

There is no near-term bullish news for oil in the “Recent News” I recount above. With over-supply remaining, I therefore expect price to carry on down during the first two quarters. It is worth noting that $20 is still 33% below $30 – that is a long way down! But in the interim, distressed investors may be forced to sell on margin calls which provides fuel to the downward spiral.

My central scenario for Brent in December 2016 was $37. Other commentators see the price higher than that by year end. Should Brent go sub-$20 by mid-year this would clearly present a good investment opportunity if prices do indeed rise thereafter as expected. Of course, if one waits for sub-$20 and the price never gets there, that would result in an opportunity lost.

My gut feel is that market bottom will be in the vicinity of $15. There are two reasons for saying this. The first is that professional investment houses will to large extent be looking at the same data I am and if they reach the same conclusions, they will define the behaviour of the herd. The second is that current price trajectory heads towards $15 by the end of the second quarter. Beyond that, supply and demand should converge towards balance, heralding recovery.

In my 2016 scenarios, one scenario was called “Event” and the probability of an Event taking place, like disruptive terrorist attacks in Saudi Arabia, will increase as the price falls. For example, Saudi ability to pay for state security is impaired while the levels of social unrest linked to mounting poverty rises. If there is an Event that sends the oil price sky high then lucky investors will be those who got on board beforehand.

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52 Responses to Oil Price Crash: How low will the oil price go?

  1. sod says:

    Interesting post, thanks for this sum up, good read.

    I think there is a minor math error in this sentence:

    “It is worth noting that $20 is still 50% below $30 – that is a long way down!”

    the drop is by a third. Climbing back from 20$ to 30$ would be a 50% step.

  2. Askja Energy says:

    One thought:

    What was the average cost of producing a barrel from producing fields in 1998-99? In today’s USD?

    As I understand, this average cost in 2015 was close to 30 USD/barrel.

    • Euan Mearns says:

      Average cost is not a very useful or easy to define metric in the oil patch. Lifting costs in Saudi are perhaps $5 / bbl. But running Saudi Arabia PLC used to cost over $100 / bbl.

      The key variable is cost of marginal supply, i.e. what it cost to bring on new production – deep water, EOR, shale etc. And trying to nail these costs is near impossible since costs went through the roof during the boom and have since collapsed.

      Barring collapse of global markets, what is to be expected is for supply to eventually fall below demand and then we munch our way through billions of bbls storage before reaching a new supply crunch and price rising sharply once again. Probably not to historic highs since global economy is a wounded beast, wounds are now turning a bit septic with credit maxed out everywhere. But then industry will be very reluctant to commit investment and we could face a REAL supply crunch.

      • Askja Energy says:

        Totally agree with you, Euan, that this average cost number I mentioned is not very useful.

        To avoid major price hike in the future, it seems that oil would soon need to be around at least 60-70 USD/barrel to make investing in new oil production attractive enough. If oil stays very low for years, the world economy will probably get into major trouble when the crunch hit us.


      • Euan Mearns says:

        Great chart! Versions of this have been going around for years, maybe IHS produced the original? The question I have for Asjka is have you updated the costs to allow for their collapse? Energy, day rates, rig rates, steel, helicopter rates, ROV rates etc have all fallen dramatically and this must impact future development costs.

        And what is Askja’s prognosis for the price bottom? 😉

        • willem post says:

          What if gross world product grows at about 1%/y going forward; Btu/$GWP keeps declining due to efficiency, etc.; demand for crude stops growing (even declining); and renewables keep on increasing?

          The pressure, and investments, to develop new crude fields would be much less, even with production declining from existing fields.

        • Askja Energy says:

          Euan; when I am asked a question like that (prognosis for the price bottom), my usual answer is that nobody knows nuthin! Which is a quote from John Bogle.

          We all have been told by the media and “specialists” that each tight oil well (or “shale oil” if you like) has a very short lifetime. So, having regard to quite high cost in drilling new such wells, we were told that this production would decline quite fast if/when oil price went under 40-50 USD or so.

          And this type of drilling has indeed slowed down (as your charts have shown very clearly). Still, by now it seems obvious that the tight oil producers do not act very well as the new claimed swing-producer. This is interesting, as CITI and others had told us that the tight oil producers would be able to balance the market quite fast. The problem, may be that the group of tight oil producers are no Saudi Aramco. Instead, they are a misaligned group where each and everyone is thinking mostly of him self.

          It is a bit funny how Ed Morse now seems really confused.

          Morse, Dec 16 2015:
          “Citi’s Ed Morse Sees WTI Crude at $55 and Brent at $60 by End of 2016”.

          Morse, Jan 12 2016:
          “As global stocks of crude oil and petroleum products continue to increase, the energy industry appears to be running out of storage capacity, which will probably further weaken oil prices which could fall as low as the $20 range.”

          So what will be the bottom? It’s like betting on a number at a roulette in Las Vegas. And actually the oil market is like a roulette; unpredictable and little use in considering the odds unless you can keep on betting almost forever.

          By the way, what is really interesting for me, is that in 2014 the Icelandic banks used a lot of their foreign currency to invest and finance projects in the Norwegian PSV business (Platform Supply Vessels firms like Havila). As soon as this bet was made the PSV-market collapsed (with collapsing oil price). So it seems that the Icelandic banks have yet again started to move into the wonderful world of write-off process. Sic!

        • Askja Energy says:

          PS: The chart is based on cost numbers for first half of 2015. Costs may have become somewhat lower now.

        • Askja Energy says:

          Euan; I should add that in an article I wrote recently (in Icelandic) I quoted Wood Macenzie, where they hinted that 25 USD might be the floor. Because, then tight oil cash-cost starts becoming negative. Note the second graph:

  3. The situation, to me, completely defies any logic whatsoever. Russia and OPEC alone could have agreed to easily remove 3-4mbd from their total (38M?)mb/d production to push the price back up to 80-100$. But no they all choose the pain of 20-30$ oil. They are stark raving mad, the lot of them.

    • Euan Mearns says:

      While I agree with this assessment, had OPEC continued to cut production to support $100 they could have ended up with over 15 Mbpd from the USA and growing shale output from Canada, Russia and perhaps Turkey, UK, China and Argentina. Over supply of expensive marginal barrels is going to prove to be a bitch for decades to come I believe. I don’t think the free market can fix this.

      • I agree but then they are all pumping the peak hell for leather instead of eeking out 100$ oil..It’s like a gruesome race to be the first producer to deplete their own resources at record low prices. Reminds me of our own North sea race to the bottom when we had our 2nd peak slap bang in the middle of 10$ oil. Even if growing shale can push USA up over 15mbd I have a sneaking suspicion that the environmental factors are going to start becoming unpalatable to many – we’re taking water pollution, water resource, ground pollution etc…..

        Oh apologies for not subscribing yet. Used to post as “Marco” over at the oildrum from many years. We did speak on a few occasions!

    • If we can agree low oil prices are the result of geopolitical tension between America and Russia. We could then proceed to understand the reality facing Russia and OPEC. As we know Russia is under sanctions and is heavily reliant on oil exports. It simply can’t afford to cut production.
      OPEC has no autonomy where America is concerned. Hence the willingness to go along with such a detrimental policy.

  4. depriv says:

    Since you are flirting with TA I think it worth to mention that for long term charts and/or extreme price actions log scale is often used.

    Also, for finding supports we use channels too, not only horizontal lines.

    • Euan Mearns says:

      Thanks for that. Its useful to be reminded about where one’s boundaries of expertise lie. Having said that, would you care to share with us where you see the bottom?

      • depriv says:

        Difficult… Let’s say that most likely it’ll trade in the 20-22 range at some point in this year.
        But I definitely does not trying to say that it’ll be a bottom. Or THE bottom. It’s just a range which most likely will be reached.

          • Euan Mearns says:

            🙂 using a double negative like that translates to “everybody knows something”.

            I like Nils Bohr “Prediction is difficult, especially about the future”.

            We have the advantage of being able to watch history unfold and can update and adjust our opinions accordingly.

          • depriv says:

            That’s a common misunderstanding about TA…
            You don’t have to know the future 🙂 TA in practice is about probability.

            There is indeed an another kind of trading/TA when one sells predictions – that’s when it’s about the show, and the show is about self-confidence and ‘knowing’ the future (which most times burns down to this ‘nkowing’: somebody will pay for this prediction anyway).

            I guess it’s off here. Euan Mearns: thanks for this blog. Good piece of work.

  5. GV says:

    Just some thoughts
    Gut feeling: when the big boys start predicting much lower prices the end of the crash is near, we already knew Iran would dump more oil in the markets and that has been discounted in the price and SA wil not sell its silver, I consider the move a decoy, and by now they must realize that the rebalancing of power in the ME has started and that it has become useless to blackmail the markets. Moreover, you’re list of recent events is so convincing that oil prices will drop more that it makes me wary.
    The short positions are so huge that we should get a considerable bounce pretty soon. Technically I draw the bottom at $ 25.
    Risks are situated on the upside. We have the condensate con story, we have the challenge of refinancing the shale industry in Q2 and lower prices must have a positive effect on demand (just some patience as lower prices seep through the economy).
    Finally: Quote investigator http://quoteinvestigator.com/2013/10/20/no-predict/

  6. Ken Meyercord says:

    At least consider the possibility that the price of oil is being gamed by the powers that be to put the squeeze on Russia. A detailed analysis of how the market works to determine if it is susceptible to being gamed (which I don’t pretend to have done or be capable of) might be instructive.

  7. A C Osborn says:

    OPEC consider that they have one the war with Shale producers,
    but the only way that that can actually happen is for the price to stay under what “shale” can produce it for, once the price goes above that level they or someone else will just start supplying again. After all the Oil/Gas is still there.
    OPEC are destroying their poorer country’s profitability for something that doesn’t appear to be possible, isn’t that what “Demand” and “Supply” is all about?

  8. If one believes the latest IEA supply and demand projections the bottom in oil prices is probably still a few quarters off:

    So should potential investors wait before jumping in?

    • Euan Mearns says:

      Well, I’m not tempted at this level and won’t be tempted until price shows signs of forming a bottom at a time when fundamentals are more bullish. But the lower the price goes, the harder this becomes. Brent jumped 5.5% in early trade today on news of glut from the IEA. 50% of that jump was closing the gap with WTI that is about to hit the 28s and Brent has given up most of its early gains.

  9. dereklouden says:

    Russia and Iran are on one side in Syria with the US and Saudis on the other side. There won’t be a recovery in the oil price until this stand-off is resolved. No cut-backs in output will be made by one side if this hands an advantage to the other. US output is falling as producers can’t make money at these prices. They also can’t service their debt. As much of the oil boom was financed with cheap loans when oil prices were >$100 a barrel re-negotiation of borrowings & interest rates can’t happen affordably at $30 & the small E&P firms are filing for Chapter 11.
    This is a global problem and will further reduce global aggregate demand as banks end up holding assets no-one has the cash to buy. Banks will own much of the US industry by the end of 2016. Some nations will be worse off than others. Venezuela’s social infrastructure cannot be sustained at $30 oil. As their hedges expire (PDVsA were sophisticated players) the pressure will mount. The Saudis need to factor in the effect of their actions on their OPEC partners but haven’t done so up till now. Asset prices will continue to fall for much of the year. Don’t dive in yet!
    For the market as a whole, fracking and technological improvements have caused a rightward shift in the Aggregate Supply curve of oil & gas. There’s been a massive change in potential output.
    Austerity by many governments around the world coupled with tax cuts have put more money in the hands of people less willing to spend and more inclined to save it. Aggregate Demand needs to grow to absorb the extra output and in part restore the oil price. It can’t grow under the present scenario. Prices won’t be set where the industry wants until government policy alters. Until then we’ll stay in the Nineteen Thirties. Not a happy place to be.

  10. Wm Watt says:

    On the political front the USA recently attained it’s goal of self-sufficiency in oil making it’s involvement in the middle east less important. Only about 13% of oil reserves are under private, ie corporate, ie economic, control. Populist governments tend to milk oil reserves for social spending which lowers investment in production efficiency and raises the cost shown in the table above.There is therefore potential for lowering the cost of current production and hence the lowest sustainable selling price. Mexico, for example, is inviting private involvement to improve it’s wastefull production. The Saudi’s hire American engineers to pump their oil because they do it more efficiently. And then again governments recently announced an end to the use of oil which could have investors and their bankers thinking twice about investing in new capacity until the resolve of the politicians is tested.

  11. garethbeer says:

    Peak-oilers are very quiet – wasn’t demand supposed to exceed supply (and in their mind maximum possible ever production, wells running dry, never to be purged again all the ittle fossils gone!) causing a big spike in price??

    Although investment of £650bn a year isn’t happening…

    Wind power all but gone across Europe, sending power to France…

    • Euan Mearns says:

      I am a latent peak oiler 😉 Need to write a post on this sooner rather than later. But I used to write under the moniker Cry Wolf, and once again the PO community has done just that!

    • Bernard Durand says:

      Gartethbeer, unfortunately most of this power coming from Germany only crosses France to be stored in dams of Switzerland, which buy it at low prices and eventually sells it to Italians at high prices. The French unfortunately catch only a part of this sold off cheaply stuff

      • garethbeer says:

        No doubt you’re correct. That’s the question of interconnects – are they really beneficial? All they create is an enhancement of the kick-the-can (down the road or over the border) mentality, only delays cap ex or power cuts!

  12. Daniel says:

    Not quite; in fact, peak oil is still there even if it is not so popular. And the price in peak oil is not supposed to stay permanently high, but to swing wildly.

    This recent blog post (in Spanish) makes a fair summary of events from a peak-oiler point of view:
    For non-Spanish speakers, Google Translator does an acceptable job.

  13. dcoyne1984 says:

    Hi Euan,

    A problem with your analysis is that it assumes that production costs are of no consequence.

    My guess is that the marginal barrel in 1998 was considerably cheaper to produce in 1998 compared to 2016 (when we adjust for inflation), so assuming the oil price bottom will be similar without adjusting for this fact is a mistake.

    Also circumstances are different in that the Saudis were flooding the market at the time and the conventional wisdom was that they could add more oil if needed. At this point nobody thinks there is a lot of excess capacity at $25/b, much less $15/b.

    It is doubtful that US output can be sustained at the levels that the IEA predicts at the current oil price level. For this reason the IEA supply forecast is likely to be too high and supply and demand will balance sooner, as the stocks are gradually reduced, oil prices will gradually rise, probably to $60/b by the end of 2016.

    • Euan Mearns says:

      WTI now trading on $26.47 and the most bullish comment on this thread saw $25 as bottom. Dennis, my analysis takes into account inflation’s impact on purchasing power of $. I don’t see where the cost of marginal barrels comes into the equation. Large projects where steel has already been cut are going ahead and will likely still make money long term. The main losers on the producer side are the shale operators, short term production being sold at a loss.

  14. PhilH says:

    At least some of the ‘oil’ from the Albertan tar sands is said to fetch about $15 less than WTI, so if the oil price does fall below $15, they won’t be able to give their output away, which might help staunch the flood of excess supply.

  15. garethbeer says:

    Some sense from an MP & mentions of mssrs Mearns & Andrews in the comments – well done Gentlemen…


  16. ljnissen says:

    So if I understand correctly Euan, there is just a slight overproduction of around 1.5-3.0 million barrels a day that has been and is driving the oil price lower. In your opinion, how long will it take for the current reductions in CAPEX spending by the energy companies to feed through to lower production for non-OPEC countries, the US included?

    • Euan Mearns says:

      Had a long discussion with a well-informed friend about this today. Its a difficult question to answer. 2015 was characterised by little evidence for low price feeding through to reduced production. If you follow my Vital Statistics updates you’ll see they emphasise plateau everywhere apart from USA where declines are less than expected. So it easy to be lulled into a false sense of this continuing while in fact conditions on the ground may be a lot worse now than last year.

      In mature areas like the North Sea we may actually see production rising this year as large projects come to fruition. If that is replicated in areas like Gulf of Mexico, China and Brazil then we have true head winds for oil price. Reduced capex on old field refurbishment will have little immediate impact on production and even closing fields down may have little impact if they are producing a dribble of 5000 bpd.

      Recovery will come and when it does come it could be swift and strong. My price forecast for end 2016 was $37 and I don’t see any reason to change that yet. So I think we have to wait for 2017 to see strong price recovery. But I could easily be wrong.


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  19. Good post Euan. Happy to chat at anytime about the situation. My quick take, which is a condensed version of my longer work is as follows: the supply response one would have rationally expected in 2015 will start to arrive in 2016. However, as this response is a year late, it’s not enough. Worse, the supply response so far is mostly characterized as flattening of the supply growth rate. This oil market and many participants are probably applying a normalcy framework to the situation, erroneously believing the market will rebalance itself nicely and that the futures market will begin to discount that happy outcome not far from now. Alas, I don’t see the timeline as being so short. Rather, by the time the oil market is able to observe the flattening of supply growth, it will then become apparent this market needs outright declines. I am willing to be much more constructive on oil prices therefore in 2017 when 1. enough time will have passed to potentially trigger outright supply declines, and 2. the flood of cheap energy from all sources converts from a deflationary force to a stimulative force. Again, these factors converge more realistically in 2017.

    I’m afraid the 15 straight years of market share losses for oil in the global energy mix have now run into the lagged effects of enormous upstream oil and gas investment, delivering the oil market to a most unfortunate condition where supply capability is far above demand growth. As for the analytical community that surrounds and observes oil, old rules apply: first, this is 2015, not 2005. Hard lessons learned and new realities forged a decade ago do not apply as much ten years later. But, many remain anchored analytically to a time 10 years ago, when the price revolution in oil prices (upward) was real, justified, and serious.

    I am at least as shocked as anyone to observe the following change, the biggest in my 15 years of following this market: we have now shifted from a global oil market where demand threats are always waiting to unmask limp supply growth—to a market where supply-growth threats now loom to unmask limp demand. This could go on for quite some time.

    All best to you, Euan!

    Gregor Macdonald

    • Euan Mearns says:

      we have now shifted from a global oil market where demand threats are always waiting to unmask limp supply growth—to a market where supply-growth threats now loom to unmask limp demand. This could go on for quite some time.

      Hi Gregor, that about sums it up. While there has been much focus on US LTO, I think the supply side of the market should be concerned about a stream of large conventional projects coming to market. Oil production should rise in the North Sea to 2020. Inertia first and then momentum. The only way to manage this market is via flexible swing producers who should be rewarded for the service they provide.

      But I’m not sure that this will necessarily go on for some time. Demand is always cyclically low in the first 2 quarters and will pick up in Q3, so long as wheels don’t fall off in China, demand growth should eventually eat through the excess supply. By year end we should see supply falling and demand growing and demand leading supply 1Q 2017.

      But it looks like Saudi and Russia are looking to do a deal on production in which case all bets will be off.

  20. Ric Swenson says:

    I don’t know if you would be interested in what I may have to offer to this discussion. Perhaps it could be of interest and/or help to some, perhaps not…you can be the judge. I have studied Elliott Wave analysis beginning in 1975 and have a cursory understanding of its predictive value. The crude oil chart began a C-Wave down the week of 8/30/13. That C-Wave is comprised of an impulse 1,2,3,4,5. Confirmation of said C-Wave completion will occur with a close above $38.00 in the next 3 week period. If and only if this occurs do we have confirmation of a price bottom of $27.56 on 1/20/2016. If the $38.00 price fails the a lower bottom is in order.

    • Euan Mearns says:

      Ric, this is valued insight. We have to bear in mind that the oil price is impossible to predict. But looking at the charts I’d agree that if Brent breaks above $38, then the correction to test lows will unlikely go below $27.6 and getting close to that level would be a buy signal. On the other hand, if the current rally fails to break $38, then the coming correction will have to be viewed very closely to see if $27.6 is breached.

      All the way through we need to watch fundamentals. Saudi Arabia now wanting to talk production quotas. Will it happen, will it not? And Shanghai looking very bearish. Old Chinese proverb: “tail can wag dog” 😉

      • Ric Swenson says:

        Mr. Mearns,

        Acknowledging your reply, thank you. I chart WTI front month crude.

        My experience tells me that Elliott waves graphically depict fear and optimism resulting from fundamentals. Elliott patterns tend to complete when pain becomes intolerable and human beings stubbornly resist change until the pain, truly, becomes intolerable.

        I read Oil Drum from it’s inception and tried to absorb as much as possible from all of the wonderful contributors. Being a Wood Scientist, I was at a bit of a disadvantage educationally so never contributed, But I consider myself a reasonably intelligent human so I slugged through as much as you all presented and feel much richer for it. I very much appreciate your web site and the opportunity to contribute a small measure of insight, if I may be so bold to say that.

        Would like to contribute $ and am in the US…Does your site accept US$.

        Peace, Ric

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