Crude Awakening: The Real Catalyst for Oil's Crash Isn't What You Think
Patterns of investor psychology painted a bearish picture for oil… back in January
by Nico Isaac
Updated: March 13, 2020
- "Bloodbath" (Fortune)
- "Meltdown" (The Hill)
- "Crash" (Bloomberg)
- "Demand Destruction" (Forbes)
-- they all describe the recent performance in the world's most actively traded commodity market: crude oil.
On March 9, NYMEX crude suffered its steepest single-day selloff since the 1991 Gulf War, bringing its March losses to 30%-plus and prices to a four-year low near $30 per barrel.
At last check, (the list is constantly growing!) the mainstream experts cited FOUR main catalysts for crude's relentless rout:
1. Coronavirus fears, and the subsequent contraction in travel and fuel demand. The first official travel restrictions begin on January 23 in Wuhan, China, while the World Health Organization declares COVID-19 a national health emergency on January 31.
2. A pivotal March 6 OPEC+ meeting which ends in discord after Russia fails to agree on production cuts. In retaliation,
3. On March 8, Saudi Arabia goes rogue and approves the biggest oil price cuts in 20 years
4. And, on March 11, U.S. President Donald Trump announces an "unprecedented" travel ban between the U.S. and Europe.
As a March 12 CNN Business surmised: "It's a nightmare scenario for the oil market."
While the news events pertaining to crude oil and the global economy are indeed nightmarish, the crash in oil prices is a positive development for those who anticipated the change in trend and positioned themselves accordingly -- before a minor "blip" became an all-out "bloodbath."
Was that even a possibility?
Yes! On January 17, our Commodity Junctures Service editor Jeffrey Kennedy published his highly anticipated "2020 Commodity Outlook" video. In it, Jeffrey identified the long-term trend changes in store for the world's leading commodity markets, including crude oil.
There, Jeffrey identified an alternate bearish wave count for crude oil that called for prices to be slashed in half from current levels. In Jeffrey's words:
"The big narrative when you start looking at the weekly and monthly crude oil charts is -- any strength we see is going to fail."
Note the timing of Jeffrey's January 17 forecast. It occurred:
BEFORE the very first coronavirus travel restrictions were enforced on January 23
BEFORE the OPEC+ "deal died" (Reuters) on March 6
BEFORE Riyadh retaliated against Russia's no production cut stand with massive oil price cuts on March 8
BEFORE the "unprecedented" US-Europe travel ban on March 11.
We invite you to watch this short clip from Jeffrey's January 17 Commodity Outlook video on crude oil to see what price level, if broken, would signal a "big move down."
On February 7, in his near-term sister service Daily Commodity Junctures, Jeffrey confirmed that oil's trend was now down and said,
"It's basically telling us that the high of the year is in place in crude oil and we will fall to $33 a barrel -- at minimum."
The next chart captures the action: oil prices took the downside in earnest, plunging below $33 per barrel as anticipated by Jeffrey's January 17 bearish wave count.
We can't know how the coronavirus crisis will play out, nor can we can we predict what OPEC+'s next move will be. But what Jeffrey Kennedy's "2020 Commodity Outlook" can do is show you high-confidence turning points in the world's leading energy market -- along with 11 other key commodities.
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