I'll cut right to the chase: On Monday, December 14, crude oil prices fell below the psychologically important $70/per barrel mark to close at a fresh, two-month low. It was the market's ninth consecutive down day and the longest losing streak since 2001.
As for what caused crude's bearish beating -- the mainstream experts cited one main factor: A recent report revealed that oil supplies are 7.2% above the five-year average for the period. Here, the recent news items below speak to the matter:
- "Crude slips... The drop in prices has been spurred by the massive supply overhang." (Wall Street Journal)
- "Crude Dips Below $70 On Oversupply Worries. Sentiment toward oil changed pretty quickly after the inventory data. There's now a new pessimism." (AP)
- "Crude Down More Than $1/Bbl on High US Inventories. Now traders have to start to face reality and that means they have to take a look at the weak fundamentals." (Bloomberg)
There's just one problem: The "reality" of excess oil inventories is anything but new. Traders were forced to look at this truth two months ago, when an October 15 Energy Information Agency report disclosed the following:
- Weekly stocks of distillates soared 34% from year ago levels to a 26-year high.
- Inventories of crude oil were 9.6% above the five-year average for the period.
Yet -- the long-standing supply overhang notwithstanding, crude prices enjoyed a powerful uptrend above $80 per barrel to their highest level in over a year.
The "reality" is this: The recent winning streak in oil ended at the $82/per barrel high on October 22. And in the October 23 Energy Specialty Service, EWI's chief energy analyst Steve Craig alerted subscribers to the market's downside potential via this insight:
"The next big hurdle is this week's 82.00 high. On the downside, trade below $77.64 should be a good indication that the [advance] is complete and that the retracement is in progress…."
Soon after, Steve updated his call for a decline in the October 27 Energy Specialty Service; he wrote; "I am now anticipating a deeper, more proportional retracement."
Then, after weeks of crude oil prices trailing sideways, the November 30 Energy Specialty Service saw the range-bound trend coming to an end and wrote: "If my count is on target, the market should be towards the end of the advance. Trade below […] should be a good sign that... a corrective pullback is underway."
Now, the depth and degree of the decline did exceed Steve's initial target, yet the direction of the trend did reflect his long-term crude oil outlook. And, in the latest Energy Specialty Service, Steve draws a compelling blue-print for where oil could be in the days, weeks, months, and even decades ahead.
Case in point: The following historical close-up of crude oil since 1859 is presented, with full Elliott wave labels, in the current Energy Specialty Service.