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Oil Prices: Living on a Prayer?

It doesn't take a god to know where oil prices are headed. It takes a solid forecasting method

by Nico Isaac
Updated: May 05, 2015

I often joke that, given a chance, most days you'd overhear two things being uttered under the breath of energy market traders: expletives and prayers. 

Some give up altogether, yell "uncle!" -- and accept that it's not in their power to navigate the near-term volatility in markets like crude oil. And we're not just talking amateurs here. In a May 5 CNBC interview, Saudi Arabia's Oil Minister, Ali Al-Naimi, one of biggest energy authorities on planet earth, made this shocking concession:

"No one knows where prices are headed. No one can set the price -- it's up to Allah."

Well, we mean no disrespect to any religion and its deities. However, we respectfully disagree. In our experience, it doesn't take the "divine" kind of intervention to know where oil prices are headed. It takes the intervention of Elliott wave analysis.

Let's look at the recent price action in crude oil. In mid-March, prices were circling the drain of a six-year low amidst a record-setting supply glut. And, according to the mainstream gospel, the path of least resistance was unquestionably down. These news items from March 16 and March 18 reset the scene:

"I think the market almost has to have a $30-handle on it before it gets this out of its system. There are an awful lot of smart people who think the market is on a rendezvous course with the December 2008 low of $32.40." (CNN Money)

AND -- "There's nothing to stop oil from finding another drop lower." (Wall Street Journal)

Through the Elliott wave lens, however, our analysts saw a very different -- i.e. bullish -- picture. On March 16, in his Energy Pro Service editor Steve Craig warned that the next price handle for oil was not to $30 -- but rather the totally opposite direction to $60 per barrel -- and beyond:

"The market should trend on down to finish wave b... From a near-term perspective, a bounce seems due. Trade above 47.28 (maybe 46.29) should be a good indication that an interim bottom is in place and that a countertrend advance is underway."

Soon after, oil prices hit bottom at $42 and commenced soaring to a 5-month high above $60 per barrel. Here, the next chart shows you the full extent of the market's rally:

 

 

In the end, crude oil prices are not living on a prayer. There is a pattern in this seeming chaos. You just have to know what to look for.

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