Brent Oil: Last Wave Down Before A Big Correction Of The Downtrend
Anatoly Grigoryev | Sep 27, 2015 02:22PM ET
Recently oil reached the "bottom" again, following a steep rebound up to the top. Some of the analysts say that there's nowhere to fall more, while others claim that the trend is still bearish. But what is really going on?
In general, the fundamental analysis says that:
1. Oil supply is much greater than demand. There is much more oil made than used;
2. Technology of shale oil extraction is being developed quite fastly, cost price of the extraction is constantly going down;
3. Nonetheless, oil is sold at the price too close to the extraction cost price in the majority of the oil-exporting countries. We can see, that the price seems to go down, but quite reluctantly by now. Oil supply is increasing, but the demand is not falling a lot. From the point of the Elliott Wave Principle, in a situation like this a model called «Diagonal Triangle» (in terms of a classic technical analysis - «Falling Wedge») may occur. Having finished this figure, the price usually starts going up.
Approximately this is what we see on the oil chart:
Diagonal Triangle consists of 3 waves down (on picture ends of these waves are marked with 1, 3, 5) and two waves up (on picture - 2 and 4). After the ending of the wave 5 the figure must be finished, and the price is supposed to go up for a longer period. Judging by the Wave Theory, there are two types of diagonal triangles: leading and final ones. On oil chart you can see that we have a leading triangle here, because waves 1, 3 and possibly 5 in the future are not zigzags. These waves all have internal 5-waves structure.
That means that after this triangle finishes, a future growth will be of a corrective type only (app. till 2017). Since 2017 oil will start falling again to new lows. And this, falling must be much tougher and more dramatic.
Summarize
- Up to the end of 2015 / beginning of 2016 another wave of a price going down is expected;
- In 2016-2017 oil will be going up, but the growth will be too weak and it will be of a corrective type.
- Since 2017 - the beginning of sharp and powerful oil price falling, to new lows.
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