In 2008, it was demand (more perceived than actual) that was driving the oil prices up. One of the reason for the increase in demand is the growth of the BRIC countries; Brazil, India, Russia, and China. The prediction was the growth from the BRIC will cause a shortage of oil to meet the world’s daily demand, and thus the coined phrase ‘peak oil’ will drive the price to $200 and higher. And the oil experts were telling us that the price of oil will never go below $100 a barrel again. Well, so much for the predictions. As one can see from the monthly crude oil price chart, since the price of crude peaked in July of 2008 at 147.27, the price of oil dropped precipitously to reach a low of 33.20 on January, 2009, a 77% drop in only six months after it has peaked.
And here we are today, guessing how low the price of oil will go. Since June of 2014, crude oil prices have dropped more than 56% from 107.68 to the recent low of 46.83. The reason for the drop in oil prices this time is oversupply, as oppose to increase demand in 2008. The cause of this oversupply is cited primary due to the increased oil production from the US shale production (fracking). The oil experts are now predicting the price of oil could go below $40 a barrel, and stay there for years to come. And prediction is being made that oil will never go back above $100. Sound like we heard this song before; played in reverse.
Let’s take a look where the oil prices might hit a low for this cycle.
After the January 2009 low, price of oil bounced back to 114.83 which is near the 61.8% of the symmetrical move between November 2001 low and the peak in July 2008.
Using the 2008 peak and the January 2009 low, the 61.8% symmetry move will place a level at 44.33
And the projected 61.8% Fib extension symmetrical move is also in confluence with the 78.6% Fib retracement of the November 2001 to July 2008 peak swing.
There has been a lot of talk on the low for crude oil ranging from 45 to 30; the 61.8% extension appears to hold some validity to the possibility of a low for crude oil prices near the 44-45 range.
