On Friday July 10, crude oil endured its biggest weekly loss since the start of the year. In total, oil prices plunged a whopping 11% to end at a fresh, two-month low.
According to the usual suspects, the rout was the result of one main event: A July 10 International Energy Agency Oil Market Report which revealed a 2.9% drop in orders from last year. In the words of one popular news source: "Crude lower after a downbeat IEA report reaffirmed concerns about weak demand." (Bloomberg)
I'm sorry, but there are only three possible ways a person could NOT know about the "demand crisis of 2009" long since underway in the energy markets. To wit:
- Said person was born yesterday
- Said person thinks "Crude" is the name of a Norwegian Heavy Metal band
- Said person lives on planet Mars
Truth: Waning oil demand has been a mainstay (or "painstay" rather) of the market for the last year. It hasn't changed. To the mainstream experts, on the other hand, it's the one "fundamental" factor du jour that oil prices allegedly live and die by.
But think: Back in early June, when crude soared to its highest level in eight months, "a drop in demand" was nowhere to be seen among a "bullish" backdrop of "supportive price action," "political unrest," and "a weaker U.S. dollar."
Regarding the last detail, this June 13 CNN Money piece wrote: "As the dollar falls, oil prices are rising. If it falls further, they'll rise higher."
Well, as it so happened: the decline in the U.S. dollar continued, as did Nigerian attacks on oil installations. The rise in oil prices, however, did not continue: From their June 11 peak, the market turned down in a powerful sell-off to current lows.
Now take a look at the following price chart.
This is a simplified version of a chart from the July 10 Energy Specialty Service's Daily Forecast page for crude oil. As you can see, the decline from the June 11 high unfolded as wave C of an "expanded flat," an Elliott wave pattern. That's the now. What about the then -- BEFORE prices reversed course and headed down?
Well, that's where the June 10
Energy Specialty Service forecast came into the picture. On that date, Elliott Wave International's chief energy analyst Steven Craig set the stage for the coming decline with this startling insight:
"At this point, trade below $66.78 should be a good indication that a retracement [of the rally] is underway. With the push above 69.78, wave B's common objectives have been met."
No demand figures. No supply data. Just simple, objective Elliott wave analysis.