Professional Oil Outlook
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Started by Richard - Dec. 6, 2017, 7:03 p.m.

The shape of the current bull market in Crude Oil is clearly forming and a current review seems appropriate at this time. Overall we are in a multi-decade bull market in Oil that started in 1998 and should last until approximately the latter half of the 2040’s.

Looking at the overall Elliot wave structure (Elliot wave structure consists of a 5 Wave advance. 1 up, 2 correction, 3 up, 4 correction, and a final 5th to the top to complete the entire move) of oil (on a daily closing basis) we started Wave 1 on 10 December 1998 at $10.72. Oil then advanced to $145.29 into 3 July 2008. This was the completion of Wave 1 which was a $134.57 advance taking exactly 9 years 7 months to complete. Wave 2 (Correction) then went down to $26.21 into 11 February 2016. This correction consisted on a 88.4% retracement on price and 78.2% on time. We are now in Wave 3. Reviewing the shape and phycology of the Elliot wave structure it seems that things are progressing accordingly.

  1. Wave 2 corrected Wave 1 but did not extend beyond the start of Wave 1.
  2. Wave 2 was shorter then Wave 1 in time and price.
  3. Wave 2 has enormous bearish sentiment and traders believe that the bull is dead.
  4. Wave 2 was a classic 3 wave pattern correction

Accordingly Wave 3 should take more time to complete then Wave 1 and according to the text books, Wave 3 is usually the largest and most powerful wave in a trend, but at times Wave 5 can be.  As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend.

My current projections are for Wave 3 to go into 2026 sending Crude Oil to $325/$350 per barrel area. (Currently at $57)

This forecast is valid as long as we do not break $26.05 intraday.

From a very short term perspective, the upside break of $52 was done with the Commodity Funds pushing the total open interest of WTIC to historic exchange highs of 2,691,028 on November 10th and we currently have the Commitment of Traders (COT) report, indicating that the commercials have the largest net short in the entire history of the exchange also. While it is typical for Wave 3 to generate enormous power at lift-off, it is possible for a pull back. If one were to happen, the $38-42 area would be the buying opportunity of a lifetime, but as very typical with Bull Markets, especially in Wave 3, traders can miss the entire move waiting for pull backs.

Looking forward at resistance, the next point will be the $72 level, followed by $116, $148, and $225. The current move has gone from $26 to $58, a 123% advance in 21 months. I suspect that we will continue this rate of advance and can see prices challenging the $116 resistance point sometime in the Fall of 2019.

Additionally looking at other outside factors, the velocity of money has been declining steadily for over 10 years now, and is at the lowest level in as far back as the data goes. However in the latest release from the FED it did show a slight uptick for Q2 2017. If the velocity of money were to revert back to the norm which is something this indicator typically does, it could turbocharge the growth rates of M2 and send the economy and inflation soaring.

While it is way too early to forecast Wave 5, my preliminary forecast for Wave 5 is for it to end around $600 per barrel ($21 gasoline) (Wave 5 should end in 30 years from now so $21 gas is not coming tomorrow!)

By qsteak - Dec. 8, 2017, 3:54 p.m.
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Thanks Richard. Often we get views on $3 to $5 moves, it is nice to get a long term perspective of how large moves can be.

By Lacey - Dec. 13, 2017, 9:34 a.m.
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Without a war, we go back into the 20's.