Light Crude Oil: How much further to fall?
Up-date N° 1/October 24, 2005
1990 to 2005: From bear to bull: the multi-year trends and the long-term picture
The chart above clearly shows one thing: long-term trends often last many years. From the beginning of 1999, it took two years for the price of light crude oil to move from $ 10 to $ 40. It followed an extended correction during which the price fell by more than 50%.
During the year 2002, the price doubled again but was unable to supersede the $ 40 mark until summer 2004. The move over the $ 40 level was followed by a surge to a new high of $ 55 with the subsequent test of what had become support at $ 40.
"The long-term picture shows that the bull-market in oil is far from over but that it is preparing itself for the next major up-leg which we expect to start unfolding through the winter months, once the present correction has run its course.
The medium-term picture
From the above analysis, it is easy to see that there have been many buying opportunities since this bull market started, along with some excellent prospects for selling.
At present, we are on the road to a new buying opportunity but opinions on the right moment to buy differ widely - as always. But if you believe that oil has become a scarce resource and its use will have to be rationed one way or another, you may not wish to go bottom fishing as you may miss out on the next big move to the upside.
Once oil supply peaks (for many oil experts before this decade is over), the world will be forced to create ways to substantially conserve our oil and other energy sources. In any case, the net difference between annual additions to world oil reserves and consumption will likely continue to worsen (see chart below).
Our recommendation at this stage is to watch the market and start buying when above indicators show sings of turning around.
The short-term picture
The short-term picture suggests that we are close to the point where new commitments can be recommended. Depending on your financial capacity, you could buy one contract now and a further one should the oil price fall another 10%.
Our recommendations were valid at the time of writing, viz. at
and may no longer be pertinent at the time of reading.
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Peter Zihlmann
www.pzim.com
investment@pzim.com
forex@pzim.com
October 25, 2005
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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