In case you haven't heard, there's supposedly as much crude oil left in the soil of planet Earth as there are chances left in Britney Spears' singing career. What's more, the mainstream "experts" think this alleged scarcity has the energy market walking around with a bull's eye taped to its back; A sitting target with every new snag.
For example, a February 19, 2008 news story said, "Oil prices up after refinery fire" shuts down operations at Dallas-based refinery Alan USA Energy Inc. "If we see a situation where there is a major disruption to supply elsewhere" explains one specialist on the scene, "that would obviously lead to prices being driven higher again." (Bloomberg)
"Obviously"… NOT.
Where disruptions to oil supply are concerned, nothing trumps the devastating events of August 29, 2005: that's when Category Five Hurricane Katrina struck the oil producing epicenter of the United States, flooding rigs, destroying pipelines, putting 15% of the region's oil refinery capacity on the blink, and completely shutting down 95% of crude production.
If ever there was a time for the cause-and-effect wisdom of conventional economics to play out in the real world, this was it. And, with crude already standing at a then-all time high above $70 per barrel, Katrina's impact was widely expected to send prices into another galaxy.
"This may be the biggest oil-supply shock since the 1970s," said the September 1, 2005 New York Times. "We are now in the days of reckoning."
"Hurricane Katrina hit at a tumultuous time for the energy industry," added another news source. "Put all these things together and you have the ‘Perfect Storm' of an oil crisis." (Talk News)
The reality couldn't have been further off: On August 31, oil prices took step one DOWN of a three-month long sell-off that slashed 20% from its value.
Looking back, the problem facing the oil bulls was two-fold: First, even after the crippling dent in supplies caused by Katrina, the energy industry had MORE than enough crude to cover the loss. According to data from September 2005, the Organization of Petroleum Exporting Countries was actually experiencing an "overproduction" of one million barrels per day.
Second: External factors of supply/demand are not the driving force behind changes to oil's trend. The internal measure of mass social mood, which unfolds as clear Elliott Wave patterns on the price charts -- IS.
There is no exception to the power and persistence of social mood. When the time comes for it to trend DOWN, nothing, not even the costliest natural disaster in U.S. history, can stop it.
For that very reason, the September 2005 Elliott Wave Financial Forecast went against the bullish crude oil crowd with a special, three-page energy exclusive. In it, our analysts identified a bearish divergence in the price of oil versus the price of a share of Exxon Mobil and wrote: "These signals, combined with street level fears of a gas shortage and the explosion of oil shock books, confirm the message: the coming ‘shock' is not that oil is booming, but that it will fall."
Flash ahead to today AND the question is NOT -- Will supply fears support a rise to higher oil prices? But rather, will the pattern in social mood. And, in our February 2008 Elliott Wave Financial Forecast, our analysts take the crude market apart, objective stone by stone, to show how much energy the uptrend has left.