Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter


Crude Oil Crisis Coming to an End?

Commodities / Crude Oil Jun 03, 2008 - 07:02 PM GMT

By: Clif_Droke


Best Financial Markets Analysis ArticleNow that the financial system has been bailed out, it remains for the beleaguered consumer to be rescued from the doldrums he currently faces. When will the consumer finally be freed from the torment that is so prevalent out there? It shouldn't surprise you that the answer will come from today's most talked about culprit: the price of oil.

With oil and gasoline prices through the roof, food prices on the rise and concerns about the stability of the U.S. economy prevalent, it's no wonder that consumer sentiment is at a multi-decade low right now. Take a look at the latest chart below.

It's a foregone conclusion that the consumer will feel much more like spending once he sees oil and gas prices coming down from their vertiginous levels. The good news is that this inevitability may occur sooner than expected.

Let's take a look at the recent price history of the oil market. The crude oil chart shown below shows an upside “channel buster” created a temporary exhaustion of the uptrend. Channel busters typically signify tops and turning points in an established trend. This recent channel buster has brought some welcome and much needed relief to what has been a nearly continuous rise in the oil price since February. For now, the 135.00 level remains the benchmark resistance that should keep a lid on the oil price in the near term.

Before we go further into oil price trends, let's shift gears and look for a minute at an important benchmark that is related to the oil price. I'm referring to the Dow Jones Transportation Average (DJTA) and its surprisingly strong bull run.

The doom-and-gloomers aren't convinced that the rally in DJTA has any meaning for the crude oil price or the economy. To be fair, we should ask how much of the recent rally to new highs in the DJTA was related to the “Warren Buffett factor” is up for debate. The famous investor extraordinaire took a high-profile stake in Burlington Northern Santa Fe (BNI), a major component of the Dow Transports, and this highly publicized move may have helped ignite the rails to their recent highs. If so, this would call into question the Dow Theory significance of the rally in the Transportation index in relation to the Dow Industrials.

Be that as it may, the economic consequences of the surge in the DJTA can't be overstated. In the recent past I've argued that while Dow Theory is somewhat outdated as a viable system for predicting bull and bear moves in the broad market, it has never lost its validity as a tool for predicting economic slowdowns and recoveries. In particular, the DJTA is of prime importance as a barometer of future anticipated economic activity. As such, the DJTA lends itself well to predicting the onset of periods of economic expansions and contractions.

As you can see, the DJTA has established a pattern of higher highs and higher lows since January of this year and it has enormous implications for the economy. For one thing it suggests that fuel prices won't be a dominant factor weighing against retailers, consumers and shippers in the months ahead. It also suggests economic improvement should be seen as the year unfolds and by the time the election rolls around, it's doubtful the economy will be much of a hot-button issue anymore.

Now we turn to the 10-month oscillator for the crude oil price, a measure of longer-term overbought and oversold pressures. As you can clearly see, the 10-month oscillator is flashing a huge “overbought” reading which signifies an intermediate term top is in the making.

This overbought extreme is portentous, for it means that crude oil will have tremendous overhead resistance to contend with and will be vulnerable to selling pressure in the weeks and months ahead. The sell signal flashed by this indicator suggests that relief is on the way for the consumer as the oil price should gradually back off its all-time highs.

Last but not least, we can't forget that 2008 is a presidential election year. As such, everything that has significance to the consumer and the investor will be highlighted by the mainstream press and blown up into a major hot-button political issue. Oil is certainly one of those highly charged political issues right now. Yet consider the following similarities between oil in the present and oil during the last election year in 2004.

  • In 2004 crude soared 53% ($36 to $55) in only 4 months, then fell -27%
  • In 2008 crude soars 59% ($85 to $135) in only 4 months, then falls (???)

Here is a chart showing the 2004 crude oil experience from a commentary I wrote at that time. Notice the parabolic nature of the up and down moves in the oil price that year.

It's no coincidence that a meaningful top in the crude oil price occurred very close to the last presidential election in 2004. This time should be no different as the oil price must come down in order for the massive bail-out and economic relief efforts to take full effect. It is doubtful in the highest that the market controllers would allow a persistent rise in the crude oil price to wreck the economy. Don't be deceived – the oil price is governed by artificial manipulation of supply and demand, not “Peak Oil” as some would have us believe.

Concerning the Peak Oil myth, here's what noted economist Ed Yardeni recently had to say on the topic: “The peak oil hysteria may have triggered a short-covering rally by commercial accounts, i.e., hedgers, who couldn't take any more margin calls or couldn't stand the pain of being locked into prices of $100 or less. While all this has been happening, the oil market ignored rapidly mounting evidence that prices between $100-$150 rather than $150-$200 may be starting to dampen demand and boost supply.”

Yardeni also points out that Russia is cutting taxes on its oil industry to boost investment in new fields and increase oil production. Brazil continues to find more oil offshore in the Santos Basin, which could end up being what he describes as a “contiguous megadeposit” of crude oil. He also points out that “Congress may start considering ending longstanding bans on domestic drilling including overturning moratoriums that limit offshore drilling and accelerating leasing of federal lands (5/23 WSJ).”

Any observer of the history of commodity bull markets will notice that every time a major commodity establishes a long-term rising trend, the stories in the popular press are always “bent to fit the head” of the prevailing trend. The so-called Peak Oil Theory is no exception. What history also teaches is that sooner or later, supply has a way of coming out of the most mysterious cracks and crevices. When it does, it invariably spoils the party for the perma-bulls, who foolishly envision a never-ending rise in the price of their favorite commodity.

Once the oil price comes down and brings gasoline prices down with it, consumer will have a lot less to worry about and economic activity will increase. Another “oil crisis” will be behind us and the markets will have one less thing to worry about.

By Clif Droke

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy. The forecasts are made using a unique proprietary blend of analytical methods involving internal momentum and moving average systems, as well as securities lending trends. He is also the author of numerous books, including "How to Read Chart Patterns for Greater Profits." For more information visit

Clif Droke Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Matthew C. Richards
04 Jun 08, 00:22
Peak Oil

What's more important than the peak oil theory and whether production has peaked are the above ground factors. Oil exporting countries have an interest in maintaining a high price level. Evidence of widespread manipulation is nowhere to be found. Yes, it will help to close the ICE loophole and allow scrutiny by regulators, but that doesn't change the fundamentals. Oil inventories are down on the Gulf Coast by a significant degree for technical reasons. Venezuelan and Mexican exports are dropping which results in shipping times increasing from under a week to about a month. This is creating pressures to supply more tankers which leads to more overhead.

It's still possible we'll see $140/barrel - $150/barrel tested this year. We are also just beginning the hurricane season. Even a tropical storm may disrupt production in the Gulf. I don't expect the prices to remain so high either, but the point remains that there is plenty of room for crude to go up. Demand destruction here will not lead to demand destruction elsewhere in the world. China, India, and other countries can pick up the slack and help prop up the price.

As far as oil being found, the size of the finds can't replace the big fields that we depend upon for spare capacity. Also it takes time for new projects to come online and the dates have a tendency to be pushed back. It's too early to predict what will happen, yet I tend to think we'll see at least $140 tested and possibly $150 before the year ends. Regardless of whether a production peak or political peak has been reached, there are multiple factors creating volatility going forward.

As far as politics are concerned, this is out of the hands of the politicians. We aren't nationalizing our energy sector any time soon and for now the big energy interests are calling the shots. All the congressional hearings are for show and sound bites...

05 Jun 08, 20:15
Peak Oil - When does it happen?

Peak Oil isn't a theory, its just the point at the top of the bell curve when we have used up half of our limited petro supply. When do you predict the world to use up 1/2 of our petro reserves? (ie Peak Oil) We would like to check your arithmetic. :D

I'd suggest listening/viewing to Dr. Albert Bartlett's speech on: "Arithmetic, Population & Energy" It is very interesting from the viewpoint of an economist.

Rod Campbell-Ross
07 Jun 08, 04:09
Crude Oil Crisis Coming to an End? (Or has it just started?)
"For now, the 135.00 level remains the benchmark resistance that should keep a lid on the oil price in the near term." That was a short "near term"! - Three whole days - or was it two? With supply completely inelastic (actually it is down from peak) and demand nearly inelastic, oil prices will be very volatile (Econ 101). Even so, $11 in one day must be a new record. There is nothing about this market that surprises me. It could be $100 tomorrow, or $150, neither would surprise me. And as has been demonstrated right here in this very article: charting and Elliot analysis etc is not useful in todays oil market. The market is driven by market non-technical factors (to put it mildly).

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules