Best of the Week
Most Popular
1.US Dollar Crashes, Gold And Bitcoin Skyrocket As Economic Recovery Lie Is Exposed - Jeff_Berwick
2.Now Obama Warns Americans to ‘Be Prepared’ for Disaster… What Does He Know? - Jeff_Berwick
3.EU Referendum - Britain's Immigration / Migrant Crisis Explained - Nadeem_Walayat
4.EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - Nadeem_Walayat
5.Prominent Billionaire Investors Warn of Financial Crash, Quietly Position Themselves - MoneyMetals
6.Bankers Warn of BrExit Financial Armageddon if British People Vote for Freedom - Nadeem_Walayat
7.Bad U.S. Jobs Report Prompts Stocks Bear Market Rally Towards New All Time Highs! - Nadeem_Walayat
8.Gold And Silver – Friday May Have Marked A Pivotal Turnaround - Michael_Noonan
9.EU Referendum - British People vs Establishment Elite, the Illusion of Democracy and Freedom - Nadeem_Walayat
10.Felix Zulauf: Monetary Stimulation Creates Bubbles, Not Prosperity Nor Growth - GoldandLiberty
Free Silver
Last 7 days
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16
Could Central Bankers Be Gold and Silver's BIGGEST Allies? - 20th June 16
Words Still Mean Things – Brexit With Graham Mehl - 20th June 16
Baroness Warsi the Manchurian Candidate Quits LEAVE for REMAIN, Boris Johnson Next? - 20th June 16
FTSE Soars, Stock Markets Bounce on LEAVE Polls Surge, Bookmakers Widen BrExit Odds - 20th June 16
Brexit Would Trigger Devolution of Europe - 20th June 16
Stock Market Week Of Uncertainty - 20th June 16
Will Gold’s Bullish Price Chart Outperform Gold’s 5 Bearish Indicators? - 20th June 16
Bonds And Stocks At All-Time Highs: Are Markets Confused Or Broken? - 20th June 16
Silver Sleeping On the Job - 19th June 16
BrExit Odds Sink, REMAIN Polls Boost by Jo Cox Killing by Radical Right Extremist, Conspiracy? - 19th June 16
How Elliott Waves Tell You When to "Jump In" & When to "Jump Out" of Markets - 18th June 16
Stock Market Inflection Point During Bifurcation - 18th June 16
Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - 18th June 16
Gold Stocks - Bull Markets that Follow Epic Bears - 18th June 16
The Fed Giveth and the Gold Bullion Banks Taketh Away… - 17th June 16
Brexit: "The Vote Heard Around the World" - 17th June 16
Gold Stocks Summer Breakout? - 17th June 16
Stock Investors Get Higher Returns and More Dividend Income - In Less Time With Less Risk - 17th June 16
How to Use the Gold-to-Silver Ratio? - 17th June 16
Inflation, Deflation & Associated Trading Prospects - 17th June 16
Overnight Markets Struggling to Stay Flat - 17th June 16
Gold Price Surges to Highest in Nearly Two Years On Central Bank and Brexit Haven Demand - 17th June 16
Stock Market Thinking Upside Down; Dow 18k Still Key - 17th June 16
Jo Cox MP Terror Attack Killing Claimed for "Britain First" - Witness Report - 17th June 16
Stock Market, Iron Ore, Bitcoin – Is Silver Next for Chinese Momentum Investors? - 16th June 16
EU Referendum Campaigning Suspended Following Shooting of MP Jo Cox, Suspect Named as Tommy Mair - 16th June 16
Why People are Migrating to the UK, Illegal Immigration, Housing Crisis Consequences - 16th June 16
Stocks Fluctuate Following Recent Decline - Bottom Or Just Pause Before Another Leg Down? - 16th June 16
The US Consumer-Driven Economy Has Hit a Brick Wall - 16th June 16
Bitcoin Price Going Parabolic Again, Now At $730 and Up 60%+ In Last Three Weeks - 16th June 16
China's Hard Landing Has Already Begun! - 16th June 16
Crude Oil Price - Oil Bears vs. Support Zone - 16th June 16
Central Bankers Are Wrong About Inflation and Deflation - 15th June 16
Alignment Of The Dow, Interest Rates, Debt and Silver Cycles Will Deliver A Fatal Blow - 15th June 16
Stock Market Bounce May be Over - 15th June 16
EU Referendum: Have the Bookmakers Got it Wrong? LEAVE Opinion Polls Lead - 15th June 16
Gold Price Rally - 15th June 16
How to Invest for Brexit Report - 15th June 16
Stock Market Short of the Decade? - 15th June 16
Stock Market Sell Off Coming! - 14th June 16
QE - The Good, Bad & Ugly - 14th June 16
This Demographic Shift Makes Our Social Security Useless - 14th June 16
Gold Stocks Ultimate Objective in a World of Monetary Transition - 14th June 16
Philosophy of the New World Order - 14th June 16
The Brexit Game - Boris Johnson vs David Cameron EU Referendum Zombies - 14th June 16
EU Referendum: LEAVE Opinion Poll Lead of 51% to 49% Whilst Bookmaker Odds Still Strongly Favour REMAIN - 14th June 16
George Soros Making Big Bets on Gold - 14th June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

Crude Oil Price Forecast 2015 and 2016

Commodities / Crude Oil Sep 01, 2015 - 06:03 AM GMT

By: Nadeem_Walayat

Commodities

The crude oil price has relentlessly trended lower all year to an unimaginably low price low of $37 of just a few days ago, falling from $100 a year ago. The severe bear market has not only caught many market commentators off guard but has had a devastating impact on several major economies that are heavily reliant on high oil prices such as Russia, the gulf states, and other emerging markets reliant on their energy sector tax revenues to finance state spending and of course Britain's very own Scotland that a year ago was toying with idea of committing social and economic suicide (independence referendum).


The following video aptly illustrates what would have happened not only in Scotland but in the whole of the UK during the past 12 months if the SNP separatist fanatics had succeeded in convincing the Scottish electorate into voting for Scottish independence that would have unleashed forces that literally would have torn the UK apart, something that the SNP fanatics continue to remain ignorant to today, this despite the fact that the oil price collapse of 2015 alone would have collapsed the Scottish economy fuelling the process for the disintegration of first Scotland and then the rest of the UK.

UK During the Year After Scotland Votes YES to Independence:

by SaveTheChildren (youtube)

A year ago the SNP fanatics were busy galvanising the gullible masses with a stream of heart tugging propaganda into convincing the Scots to effectively vote to commit suicide by leaving the UK which I liberally warned of the consequences in dozens of articles and several videos at the time of the catastrophe that lay in store for Scotland which would be the polar opposite of the SNP's propaganda, the reality of which would literally include the breakup of first an Independant Scotland and the remaining UK as excerpted below:

Sep 07, 2014 - Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK?

Opening Pandora's Box of Disintegration, the Balkanisation of Britain

The peoples of the United Kingdom are literally being sleep walked towards the edge of the cliff, most completely unaware of the potentially disastrous ramifications for not just Scotland but for what lies in store for the remainder of the United Kingdom following a Scottish Independence YES vote that would break start the process for ripping apart a 300 hundred year old entity of an United Island of Great Britain, which as I have repeatedly warned of during 2014 that a YES vote would literally sow the seeds for the balkanisation of Britain as this Island would literally tear it itself apart as the status quo of what had been taken for granted would no longer exist.

A whole host of news during the past year illustrate that the approaching Scottish Independence vote has already galvanised agitants right across the UK, for instance blowing on the embers for Cornish independence as they wave their aptly coloured Cornish black funeralesk flag that continues with calls of autonomy literally right at the other end of Britain from the Northern and Western Isles with calls for their own devolution from Edinburgh and even calls for their own parliament that sows the seeds not only for the balkanisation of Britain but also for breakup of an newly Independent Scotland that following a YES vote would soon start to disintegrate, as for instance the bordering regions would reassert their separate identity that has far more in common with the North England than much of Scotland, formerly known as the Kingdom of Northumbria that stretches from Edinburgh in the north all the way to the city of Sheffield in the south.

Whilst Alex Salmond, Scotland's Nigel Farage repeatedly plays the Scotland is rich because of North Sea oil card, what he convientely omits is that a significant portion of Scotland's oil reserves lie in the waters of the Northern Isles (Orkney and Shetland). Many people of the Northern Isles see themselves as having far more in common with Norway than Scotland which given the near immediate currency, financial and economic crisis that would follow independence would be fast pulled towards sharing sovereignty for far greater stability with the likes of Norway that could achieve what it could never have done militarily, namely expanding its borders and gaining many western north sea oil fields. Though in all probability the Northern Isles would probably eventually settle as becoming a protectorate of the United Kingdom along the lines of the Isle of Man.

So if Alex Salmond 'King of the Scots' does succeed in his tunnel vision mission for an Independant Scotland then he will likely go down in history as the first and last Prime Minister of Scotland as we know it today, which effectively means a Yes vote on 18th September will be Scotland voting to commit suicide as when the dust settles what remains would be a mere fraction of its current size.

Oil Price Crash and SNP Independent Scotland

Nothing illustrates the magnitude of the potential catastrophe that was the SNP's economic programme for an Independent Scotland (I.S.) than its reliance on an oil price well NORTH of $120 so as to turn Scotland into the promised land of milk and honey, the picture being painted was of an Independant Scotland (I.S.) of a paradise on earth, not that far removed from reality then that which the Syrian I.S. paints for the worlds gullible muslims that crave a fast track to paradise.

With every dip in the oil price SNP propaganda responded with the price drop being just temporary instead as we have seen a year on the economic collapse of an Independent Scotland would have been spectacular even worse then that of Bankrupt Greece. The SNP's Economic Baldrick-esk Master Plan for an Independent Scotland that was wholly based on reaping huge rewards from North Sea oil export tax revenues where SNP propaganda had convinced many Scots to Vote to effectively commit economic and social suicide by voting in last Septembers referendum that came close to achieving the catastrophe on the basis of propaganda implying upwards of £9 billion in North Sea oil tax revenues that would be raised to finance Scotland's budgetary black hole, which in the fever pitch of the campaign had reached the heights of £11 billion so as to exaggerate the degree to which Scotland could prosper and fill the void left by the withdrawal of the English subsidy that currently amounts to £9 billion per year.

Even the Governor of the Bank of England stepped in at the start of this year by warning "the Scottish economy was heading for a “negative shock”.

The problem with SNP economic propaganda is that it was based on a oil price being well NORTH of $100 per barrel, however a sub $50 oil price does not just mean that an Independent Scotland would have made half the forecast tax revenues i.e. £3.5 to £5 billion, instead the reality is that an Independant Scotland today would be forced to bear COSTS in support of a collapsing oil industry, just as the UK government has stepped in to support the Scottish oil industry to the tune of £1.5 billion. So an Independant Scotland would today have a negative cash flow from North Sea oil of about -£1.5 billion a year and it is this that illustrates the magnitude of the catastrophe that Scotland only just missed by a whisker if they had fallen for SNP nationalist propaganda.

Czar Putin and the Oil Price

Meanwhile the oil price collapse of 2015 has forced Czar Putin to reign his Ukraine and eastern europe military ambitions which all year have remained stuck in an holding pattern in Ukraine after last years land grab that few saw coming but which I warned of at the very start of what lay in store for the people of Ukraine.

24 Feb 2014 - Scottish Independence Economic Consequences for England, UK, Ukraine 2014, Britain 2016?

Just as an Independent Scotland, Russia requires an oil price north of about $110 to maintain its state finances and for every $1 below $110 Russia loses an estimated $2billion in revenue. With crude oil currently trading below $50 that's a a huge revenue loss of well over $120 billion per annum that has plunged the Russian economy into Recession with the economy looking set to contract by as much as 4% that is also bearing the sanctions consequences of the Ukraine war that is costing Russia at least 1% of GDP.

Whilst the ivory tower academics that permanently beat the drum of deflation, especially in the wake of the oil price collapse would be well served to take a look at what has happened to Russia where the inflation rate has soared to over 15% as a consequence of the loss of petro dollars that has seen the Russian Ruble grind lower to a 50% of loss of value against the dollar on a year ago.

So its no wonder that Czar Putin has pressed the pause button on the Ukraine war to probably wait until the oil price has recovered to $100, towards which Russia has little control over bringing about.

In fact the budgets of virtually every major oil producer require an oil price north of $60 just to break-even. With several such as Russia requiring a $100+ break even oil price and what is in large part sparking the economic migration of tens of thousands a month out of African oil producers such as Nigeria whose government requires an oil price of $120 to break even.

Oil Price Economic Stimulus

Whilst the producers / exporters are hurting the oil consumers / importers are experiencing a oil price bonanza as the price drop amounts to an effective transfer of wealth from oil producers to oil consumers to the tune of at least $1 TRILLION per year, a huge economic stimulus for the likes of the US, UK, Europe and every other major oil importer that has probably saved the Euro-zone economy from re-entering recession this year.

Oil Demand / Supply Fundamentals

China

However where China is concerned, its the other way around for the economic slowdown in China that has recently been felt in the global stock markets is actually a significant driver FOR the collapse in oil price. So whilst lower oil prices are supporting the Chinese economy, other drivers such as over capacity far surpass its stimulus that is likely to persist for the remainder of 2015 and into early 2016. So China does not look set to spark a fundamental turn around in crude oil demand this year at least.

Iran

The recent thawing in Iran / West relations implies the potential for an huge increase in the supply of oil out of Iran which has the worlds fourth largest oil reserves and second largest gas reserves. Whilst it may take as long as year for Iran to ramp up production of another 500k barrels a day. However a more immediate supply boost could come from the release of as much as 50 million barrels of oil in storage.

Saudi Arabia

Whilst there is no sign that the Saudi's are about to cut oil production in support of the oil price so that they are better able to finance their own large budget deficit which is estimated at $80 billion a year! However, against this the Saudi' have a $700 billion sovereign wealth fund to draw upon. In fact in strategic terms the Saudi's may well have played a part in engineering the drop in oil prices in response to market share being lost to the US shale oil industry and other non OPEC producers such as Russia so as to slowly but surely put many competing producers out of business who need a price of $60 just to break even such as Scotland's oil industry and many players in the U.S. shale oil industry who today are suffering and cutting back on production / exploration with many expected to go bust, especially those who have borrowed heavily when oil prices were high, but now are unable to service their debt mountains.

The U.S. shale oil production peaked this year at approx 5.7 million barrels per day and today has declined to 5.35 million barrels a day and is expected to continue to decline in response to a sustained low oil price. Therefore all the market commentators betting on Saudi Arabia to act to raise the oil price are going to be proven wrong, as Saudi Arabia is clearly playing the long game in very effectively dealing with competing producers.

So on the basis of fundamentals there is little sign for an end to low prices any time soon. Which means any bottom in the crude oil price is unlikely to spark a return to the likes of $100. More probably to stay stuck in a much lower range that this article will seek to determine the price levels of.

Crude Oil Price Forecast 2015

My oil price forecast for 2015 as a component of analysis of the US Dollar of 14th December 2014 expected the oil price to trend lower into Mid 2015, targeting a drop from the then approx $60 to a target low price of $36:

14 Dec 2014 - U.S. Dollar Collapse? USD Index Trend Forecast 2015

USD / Crude Oil Inverse Relationship Chart

Whilst it is beyond the scope of this analysis to conduct a forecast for crude oil prices, nevertheless crude oil is clearly in a STRONG downtrend / bear market with no sign of an end to this that ultimately targets previous multi-year lows along $36. Which implies that the over-riding trend should be towards lower oil prices before the crude oil price bottoms out. This therefore continues to suggest US Dollar strength for some time until such a basing pattern starts to materialise which conveniently coincides with my building view for the US Dollar strength into a mid 2015 peak.

The crude oil price subsequently did trend slower toward its mid year target of $36, by actually putting in a bottom a few days ago at $37.75 (WTIC). Which now implies that the oil price has bottomed. Therefore this analysis will seek to determine what comes next for the oil price for the remainder of 2015 and into at least mid 2016.

TECHNICAL ANALYSIS

TREND ANALYSIS - The last close of $48 represents a $10 rally on the last low of $37.75, whilst in percentage terms this is a huge 25% on the low. However in terms of trend has not changed much for the price chart clearly illustrates that the crude oil price is stuck within a trading range of between $60 and $40 with the most recent close of $48 virtually smack bang in the middle of this range and as the previous multi-year range suggest that the crude oil price could spend several YEARS stuck in this range.

SUPPORT AND RESISTANCE - Bear market bottom low lies in the zone $37 to $42. Whilst trading range resistance lies in the zone $60 to $64.

ELLIOTT WAVE ANALYSIS - The sept 2014 high of $112 was clearly a fifth wave peak that has subsequently ushered in a 5 wave decline to $37 which now implies an ABC correction higher towards $60 to $65. Though because we are in a trading range then this corrective rally is not going to be so simple as an ABC but resemble the messy pattern along the highs from 2011 to 2013 i.e. an ABC+ABC best describes what will probably pan out. Nevertheless EWT does suggest that the low is in, and that the immediate trend is higher towards $65. Which will probably be followed by another downtrend towards $42.

MACD - The MACD indicator is showing significant positive divergence to the oil price which is supportive of expectations for a trend higher. Overall the MACD is supportive of calmer price action ahead, namely a trading range.

SEASONAL ANALYSIS - The seasonal pattern is for the crude oil price to trend higher into October and down into early December. This supports expectations for the current rally to continue for another month or so to target $64 before reversing lower towards $40 and maybe a test of the $37.75 low before the end of this year.

US DOLLAR / OIL - It is often taken as granted that commodities tend to have an inverse relationship to the US Dollar by virtue of the fact that internationally commodities are priced in dollars i.e. a strong dollar cuts the price of a commodities in foreign currencies therefore this should, most of the time be reflected in the price charts of major commodities such as crude oil. In additional to dollar pricing, the crude oil price has literally collapsed that in times of economic uncertainty (falling oil demand) prompts both flight to safety, namely the worlds reserve currency and acts as a stimulus for the US Economy and thus the US Dollar as a consequence of falling energy costs.

The crude oil price has continued to exhibit a strong inverse relationship to the US Dollar apart from the most recent price action which shows crude oil price strength. My long standing forecast for the US Dollar is to marginally weaken into the end of this year from the current level of 96 towards 93.

14 Dec 2014 - U.S. Dollar Collapse? USD Index Trend Forecast 2015

A marginally weaker US Dollar should therefore be supportive of the crude oil price therefore implying a trend towards the upper end of its price range of around $64 as well as now probably holding the bottom of the trading range at $40 on any corrections.

Crude Oil Price Forecast 2015, 2016

Whilst it is highly probable that my original forecast low of $36 has now been achieved at $37.75. The over riding message from this analysis is that the crude oil price looks set to enter into a prolonged trading range of approx $64 to $40 for the next 12 months. Therefore my forecast conclusion is for crude oil to trend higher in the immediate future to the upper end of this trading range before turning lower and to remain within this trading range for another year. The range could also exhibit very short-term spikes to outside of this range i.e. to $70 and as low as $30, though I would expect downward price spikes to be far more probable than upward spikes above $64.

Oil Stocks

In terms of investing, with a sustained low oil price oscillating within a trading range for at least another year then this suggests that the oil sector is going to continue to contract with many players going bust due to unserviceable debt mountains built up during the boom years. Therefore it is going to be difficult to find the few golden nuggets that buck the trend amongst all of the junk so it is probably better to wait a year or so for the dust to settle then take a gamble today. However, if one does want to invest then accumulating positions at the bottom of the trading range is probably the best strategy.

As for oil price implications for the stock market then ensure you remain subscribed to my always free newsletter for my next in-depth analysis and concluding detailed trend forecasts that include the following planned newsletters -

  • Stocks Bull Market Over?
  • US Dollar Trend Forecast Update 2015
  • Islam 3.0

Also subscribe to our Youtube channel for notification of video releases and for our new series on the 'The Illusion of Democracy and Freedom', that seeks to answer questions such as 'Did God Create the Universe?' and how to 'Attain Freedom' as well as a stream of mega long term 'Future Trend Forecasts'.

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

Catching a Falling Financial Knife