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Oil's Bear Market: The Sell-off You Could Have Seen Coming

See why the 20% decline was in-line with our expectations

by Alexandra Lienhard
Updated: June 28, 2017

The recent dip towards $42 a barrel in crude oil prices put oil in the official bear-market territory. Watch this new interview with Steve Craig, the editor of our Energy Pro Service and contributor to the monthly Global Market Perspective, to find out what could have helped you anticipate the decline.

 

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[Editor's note: The text version of the video is below.]

Alexandra Lienhard: Some of the recent news items have highlighted that oil is now officially in a bear market since it's down over 20% this year. Joining me by phone to offer some perspective is Elliott Wave International's Chief Energy Analyst, Steve Craig, who edits EWI's Energy Pro Service, and contributes to the monthly Global Market Perspective. Hi Steve, thanks for being here. Now, in your view, is this officially a bear market? Are these headlines a contrary indicator or just a late one?

Steve Craig: Well, it's obviously horrendously late. More importantly though, it's really an artificial measure of little value to investors. After all, who wants to ride through a 10% draw down, much less 20%, just to find out they're on the wrong side of the market? And further, who's to say that a market won't drop below 20% before a new bull market begins. I would also argue that such an arbitrary measure isn't much of an indicator, contrary or otherwise. This year's decline has been, for the most part, right in line with our expectations, using the Wave Principle as our guide.

AL: Now Steve, you've argued persistently that OPEC does not determine the price of oil. So flipping that around, do you think that the lower price of oil will determine or effect OPEC's actions going forward? Especially given the persistent oversupply and ongoing pressure of producers.

SC: Let's not forget about Russia, but they're both probably thinking that they need to have another emergency meeting to discuss deeper production cuts. Cuts that would be applauded by producers not bound to the agreement. Beyond that, it's another "what if" for fundamental analysts to ponder.

AL: And aside from a growing supply overhang of shale, a small footnote at this time of year is usually the summer driving season. So in your view, will this help give oil a bit of a bounce?

SC: I think it's safe to say that the summer driving season has been a bust for gasoline bulls that didn't bail out at the last two swing peaks. Look, whether we're talking about oil or gasoline when you factor in seasonal trends, today's fundamentals aren't all that different from a month ago. Aside from oil's 19% drop and unleaded's 16% decline, what has changed Alex, is market sentiment. And it's at a very interesting juncture. I'll delve into it a little deeper in the July issue of Global Market Perspective, but it shouldn't come as a shock to anyone that declines of this magnitude have pushed market sentiment to a bearish extreme. We'll see the markets bounce as a downtrend progresses, but it will do so within the rhythm of the developing wave structure. Not because of the day to day fundamentals proffered by the financial media.

AL: Steve, as always, thanks for chatting today and offering these insights.

SC: Sure Alex. Always a pleasure.

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