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Saturday, April 30, 2022

How Long Will $100 Oil Last?

Crude Oil got there. Oil IS $100 a barrel plus. What does history tell us about the future? How long will plus $100 oil last?  




















CL = NYMEX Nearby Crude Oil Futures closing price.
Source: barchart.com

The above is the long term chart of nearby crude oil futures which actually began trading in 1983 (not shown) yet the first time crude closed above $100 a barrel on 2/6/2008 is shown. As one can plainly see, crude has been above $100 for a very short time. Does this tell us anything about today's oil price?

Since it first touched $100, WTI Crude has had 33 runs above $100 a barrel.  Meaning, for 33 periods since 2008, crude traded above $100. The runs lasted, on average, 21 days! The shortest were 7 runs lasting a 1 day, 4 runs lasting 2 days and 5 runs lasting 3 days. The two longest runs were 194 days in 2008 and 110 days in 2013. Here is a quick summary: 


What may be missing from raw numbers are the effects of timing. Looking at WHEN crude traded may give us a clue of what to expect. The following is the list of crude oil $100 runs for "all time"/since it began trading. 


Based on trading through it, I can attest that the first time crude oil traded above $100 in 2008 was a price shock! This is the period crude traded to its all time high above $147 a barrel! This, on top of the financial crisis which, oddly enough, with the collapse of Lehman in September 2008, ENDED the oil rally. The next time we saw $100, the market took it in stride and you can see it bouncing back and forth throughout 2011.

Maybe the return of $100 in 2012 was too much and the rally lasted 81 days in 2012 and 110 days in 2013. So the market bounced back and forth again until 2014 when it finally broke. 

Break it did, beyond all expectations. Falling below $40 a barrel and staying there and more, decimating the energy sector-not to mention the Covid demand collapse to spot market NEGATIVE prices in 2020! 2020 was the bottom and all markets have been rallying ever since. 

For perspective, the 2008 price shock was short lived. The 2011 return to $100 lasted arguably, despite all the bouncing about, until 2014 or 3 years. 

So maybe today's $100 oil is not a shock. If so, if history is any guide, we can see markets bouncing for quite a while. (3 more years?) Or, today's rally, or the entire commodity rally, is predicated on the double whammy of "end of Covid" supply chain strain and war - ominous and unpredictable war. If both ARE resolved, $100 oil can quickly become another distant memory.

Why "cherry pick" these time periods? They are not cherry picked. My free barchart.com account only offered prices starting 2000, and excel formatting worked best with the 12/31 start dates. My spreadsheet is available upon request.

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2022 George Rahal









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