It Looks Bad… Even For the Most Unpredictable Commodity

 

The two things I hate predicting the most are currencies and oil.

That’s because sudden political events drive them more than demographics or other fundamentals. Yet, over the long term, oil (like gold) does follow the greater commodity cycle, which peaks predictably every 28 to 30 years.

For example, commodity prices peaked in 1920. They enjoyed a double peak in 1949 and 1951. They peaked again in early 1980. And we recently had another double peak in mid-2008 and early 2011.

And just like for most commodities, oil peaked around mid-2008 as well. It had a secondary peak, along with industrial metals (like copper) and precious metals (like gold) in 2011. They’ve all been heading mostly down or sideways since.

The thing is, this clockwork-like commodity cycle shows me that this downward trend will continue into around 2023 before it turns up again into 2038 to 2039 or so.

That’s why I see gold and oil declining for much of the next decade.

Look at this oil chart…

See larger image

As you can see, oil saw a classic Elliott Wave pattern and 5th wave bubble peak into mid-2008, when it topped out at $147 a barrel.

At the time, as the bubble was building, I warned my newsletter subscribers that what we were witnessing with oil was largely speculators driving up prices, using high leverage at low interest rates for margin debt… all courtesy of the Fed.

And just look at what happened. Oil tanked.

The “A”-wave crash took just slightly longer than four months, during which time oil prices dropped from $147 to $32.

That is the steepest crash I’ve ever seen.

With unprecedented stimulus the world over, oil prices rebounded from early 2009 forward… but that move proved to be only a “B” wave, taking the price back to $114.

Then, like gold, oil went into a long, sideways-trading range, where it’s stayed until now.

But it looks like it’s about to break out of that channel, going either up — back near the 2011 highs — or more likely (as I project in the chart), down, below $78 a barrel.

Such a break would suggest we’re heading toward oil’s late 2008 low of about $30, a level we could reach between 2015 and 2016.

Ultimately, oil could head all the way back down to its lows between late 1998 and late 2001. That is, between $10 and $20 per barrel.

Mind you: it won’t stay there for long, and will likely average more around $40 to $50 a barrel over the next decade.

While great for our pockets, oil prices that low would create two immediate problems.

The first is in the natural-gas field. Fracking needs oil prices to be higher than $38 a barrel to be profitable.

What does that tell me?

It tells me that we haven’t yet seen the biggest innovations in alternative energy.

We’re unlikely to turn in mass to electric cars, with batteries often more environmentally toxic than gasoline engines… at least not until we get a bigger breakthrough there.

We’re unlikely to turn in mass to solar or wind energy. They take up too much space and massive amounts of capital investments… and they haven’t yet exhibited the declining cost curves of semiconductors or digital technologies that characterized past breakthrough innovations.

And second, radically lower oil prices will throw the Middle East, and all major oil exporting countries, into a crisis. That fits with my Geopolitical Cycle that first pointed down in 2001 and doesn’t bottom until late 2019 or so.

Still, such low oil prices will force more extreme innovation… and that can only be a good thing. We could well see the emergence of a new technological source of energy (rather than a natural source), that’s radically cleaner and cheaper.

For now, stay wary of hard commodities like oil and gold. They’re NOT the best way to preserve your capital when we have another global crash.

Harry

P.S. So if commodities are not a good way to preserve your capital in the coming months, then what is? I share some examples with you here.

twitter
Follow me on Twitter @HarryDentjr

 

Ahead of the Curve with Adam O’Dell

Natural Gas: The Beginning of a New Era?

This year’s winter weather has been one for the record books! And as you’re likely aware, it’s sent energy prices soaring.

Dollar: The Currency is Here to Stay

Don’t be fooled by the naysayers. The dollar WILL remain the world’s most important currency… and the latest report from Dent Research reveals one sure way to profit from continued dollar dominance. Read more in Harry’s Dent’s new report Dollar: The Reserve Currency is Here to Stay.

LEARN MORE
Categories: Commodities

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.