An upcoming turnaround on the crude market - February 28, 2016

An upcoming turnaround on the crude market

The news might be mostly about the movements of the stock exchange, but there is more and more spotlight on the changes of the price of crude oil. There are conjectures on how the falling trend will change and that will also cause sharp falls and rises in a short time. The question is obvious: will the long lasting downtrend of the crude soon turn around?

In the last few days, the price of the crude hiked a lot. If we look at the $26 price of 11 February (which was the record low so far) we saw a 25% rise in just some days. There are continuous rumours releasing from the OPEC side but no clear change is seen.

However, if we set aside these reports and look at the whole market from a different perspective, we can state that the commodity supercycle that started at the beginning of the 2000s is close to an end, and we can only see the prolonged ending of it. This slowdown is not only perceivable for the export oriented countries, but also for the firms of the energy industry.

These are not big news on their own, but if we consider historical facts and trends too, we can say, that the ending of a 10-15 year long supercylce takes at least the same amount of time. Of course, this doesn’t mean that due to the constant fall the prices will converge to zero, but that the fall will be prolonged. We can only see the ending of the first period of the cycle, and now we can expect a quite good rise in the crude oil price for the next 1-2 years. This is true for the whole commodity market, but oil will probably be the first to get back on track.

In the last weeks, the volatility of crude oil prices rose significantly, and this happened at the (probable) end of the long price fall. Based on long term market analyses, these fast and vigorous changes are probably the signs of the ending of the falling trends. On the graph below, showing the WTI type oil’s performance on the stock markets, we can see this as well, though we still have to wait for real life confirmation.

Anyhow, we can see a great potential in the crude market in the next 1-2 years, and a rise is expected from the present $28-30 price. So we assume that any dip or deeper setback is a good buying opportunity for longer term.