In 2011 we forecast that crude oil prices would in the long term move towards US$12.00 per barrel. Oil prices just touched US$50.00 per barrel, well on our way towards our target.
Whilst oil has considerable potential for a counter rally we believe this rally will only relieve the oversold nature of the market.
Implications for the oil price collapse are profound with business and consumers benefiting from the lower prices. This may stimulate low consumer price inflation, strong stock markets and real estate prices as consumers take advantage of increased disposable income. Our Bull Market Argument outlines how this phase reflects the 1921 – 1929 period in US economic history, also known as the “Roaring 20’s”.
Debt based on high oil prices will suffer of course and could trigger banking issues. If perceived by markets as a negative phenomenon, the impact is highly deflationary and could pull the world into a global deflationary spiral and depression. This is in line with our Bear Market Argument.
We anticipate oil prices to consolidate between US$40.00 to US$80.00 for the rest of 2015 and potentially into 2016 before the long term downtrend carries prices down towards our target. (More specific consolidation targets to be posted later).