Drilling For a Bottom in Oil

Do Not Be Surprised by $25 WTI Crude.

I discussed oil in my August 16 and December 9 posts. The two primary takeaways from the posts remain relevant as oil continues its fall.

Takeaway One: Two Probable Patterns

At the close of the week ending August 14, WTI Crude Oil had fallen for nine consecutive weeks. This pattern had not occurred in the crude oil market for 30 years. In the rare instances when other assets fell for nine consecutive weeks, the follow-up was one of two primary patterns. Crude Oil is repeating one of those patterns now – a consolidation (Sept. – Dec.) followed by another big leg down with the potential to reach a turning point.

Takeaway Two: Price Has Memory

I believe that markets, as complex systems, exhibit price memory. Prices do not immediately absorb information but do so slowly. Key price levels serve as attractors, even years later. In the case of Crude Oil, prices have been attracted to the $35-40 range and appear attracted below to the $20-$25 range.

Where We Go From Here?

It is increasingly likely that Crude Oil is completing the pattern it established last year when falling nine weeks in a row. The market appears attracted to a major bottom in the $20-25 range. No market behavior is guaranteed, but this scenario looks probable. Complex systems often exhibit major price movements without apparent new information. A major move toward $20-$25 should not be a surprise.

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Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. Accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.