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OPEC or Not, Crude Oil Prices Will Go 'Here'

Learn how psychology determines energy market trends

by Alexandra Lienhard
Updated: May 19, 2017

See why Steve Craig, the editor of our Energy Pro Service, believes that regardless of what OPEC does, it's unlikely to change oil's dominant trend. Learn what that trend is -- and also get Steve's latest views on natural gas and more.

 

Alexandra Lienhard:  Today on ElliottWaveTV, I have Steve Craig joining me by phone. Steve is Elliott Wave International's chief energy analyst and editor of EWI's Energy Pro Service. Now, despite the concerted efforts of OPEC policymakers to influence oil prices, the markets continue to set the trajectory. Now, in your view, does this occur on all time frames? Or is oil sometimes subject to external developments on a specific frame?

Steve Craig
:  Regardless of what OPEC does or the market's initial reaction, it's highly unlikely to change oil's dominant trend, which is down. Now, the trend of any actively traded market is determined by the collective psychology of its participants. And oil is no exception. Once traders digest new information, the dominant trend almost always wins out. It's a phenomenon we've witnessed and documented countless times over the years.

AL:  Now, recent comments from the EIA suggest that US shale drillers will continue to increase their output this summer. So same question as OPEC. No effect on price?

SC:  Exactly. US shale oil producers react to price. At $30 a barrel, they either weren't incentivized or just flat couldn't afford to drill for more oil. At $50 oil and multiple forecasts for even higher prices, that changed. And they've more than doubled the number of active drilling rigs in the past year. It's a vicious circle though, and producers are slow to react. When the price of oil tanks and producers become convinced that it's not going back up anytime soon, they'll reduce or even suspend their capital allocation for drilling new wells. What's missing from oil's fundamental story is the Elliott Wave picture. It suggests that the rebound from the 2016 low is a corrective retracement within a longer term downtrend that began at the record peak in 2008. Now, I don't think the correction has run its course. But we may have seen the peak price in early 2017. In any event, once the correction ends, and the larger downtrend exerts its influence, it's going to get uglier and uglier for oil producers around the globe.

AL:  Now when looking at your analysis, you still seem to be suggesting upside for natural gas, which is quite a bold call, given what a challenge this market can be. So, Steve, are you long-term bullish, or is this a short-term phenomena?

SC:  It's more of an intermediate-term forecast, let's say the next month or two. As you recall natural gas dropped rather sharply from its late 2016 peak to the February low. And it's in an upward correction. That correction just doesn't count as complete just yet. But once it does, I'll be looking for another substantial decline.

AL:  Steve, thanks for taking a couple of minutes to talk today. Appreciate your time.

SC:  Sure, Alex. It's always a pleasure.

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