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Oil Prices AND The 'Ike Spike' That Never Was Print E-mail
Analysis | Elliott Wave | Written by Elliott Wave International | Tue Sep 16 08 16:59 ET

The following timeline of events is as revealing as it gets.

September 8 - 12 mainstream financial news items:

  • "Oil To Soar In Ike's Wake." (Business Daily) --- "Oil Moves Higher: Traders Eye Storm" (DJ MarketWatch)
  • "With this hurricane coming up... It's hard to see that [oil] prices could really collapse in the coming two weeks." (CattleNetwork.com)
  • "Crude Climbs On Hurricane Fears. It wouldn't take much to get crude back up to $112 this week if the storm comes into the Houston region or elsewhere." (AP)

--- VERSUS ---

September 15: Ike ravages the Gulf Coast region. Oil prices plunge to a six-month low below $96 per barrel.

Any questions? Sure, the mainstream experts have their reasons for why the much-anticipated Ike-inspired rise in oil failed to transpire. The number one being: "Refineries along the Gulf Coast escaped major damage."

Only thing is -- "major damage" is exactly what the non-oil related reports of Ike's impact were describing. Here, a September 15 Reuters draws a grim picture: "Ike triggered the biggest disruption to US energy supplies in at least three years. This is like Katrina without the deaths. We have a lot of destruction. It took 24 hours to destroy something that took decades to build."

(How Low Will Oil Prices Go? In the September 15 Specialty Service Energy Outlook, Elliott Wave International's chief energy analyst presents in-depth analysis of crude oil on every time frame: daily, intra-day, weekly, and monthly. Get the full story today)

Whatever account of Ike's toll is closer to the truth, the main point doesn't change: Any market participant who took the storm rages/oil rise-warnings seriously, found themselves licking their wounds as no crude oil price spikes followed.

That very same "wisdom" also triggered a barrage of bullish oil forecasts from the energy in-crowd, a national outbreak of panic at the gas pumps, and price gauging -- ALL based on fear and speculation rather than facts.

It wouldn't be the first. Case in point: August 29, 2005: that day, Category Five Hurricane Katrina struck the oil producing epicenter of the United States (the Gulf of Mexico), flooding rigs, destroying pipelines, putting 15% of the region's oil refinery capacity on the blink, and completely shutting down 95% of crude production.

If ever there was a time for the cause-and-effect logic of conventional economics to play out in the real world, this was it. And, with crude already standing at an all-time record above $70 per barrel, Katrina's impact was widely expected to send prices into another galaxy.

"This may be the biggest oil-supply shock since the 1970s," began a September 1, 2005 New York Times. "We are now in the days of reckoning." --- "Put all these things together and you have the ‘Perfect Storm' of an oil crisis," added another. (Talk News)

The reality couldn't have been further off: On August 31, oil prices took the first step DOWN, in a three-month long sell-off that slashed 20% from its value.

Bottom line: External factors of supply/demand are not the driving force behind changes to oil's trend. The internal measure of mass social mood, which unfolds as clear Elliott Wave patterns on the price charts -- IS. And, when the time comes for it to trend DOWN, nothing, not even the costliest natural disaster in U.S. history, can stop it.

As for the most recent downtrend in oil prices -- the tried and true facts are this: Crude oil has plunged more than 20% from its July 11 peak. And, one day prior to this critical turning point, the July 10 Specialty Service "Energy Outlook" acknowledged the downside potential in the market's near-term future and wrote:

"Two key topping indicators are still evident - extreme bullish sentiment and relentless media attention. Possible third and fourth signs - volatility and cries for more government regulation of commodity trading - are nearing their heads... It all points to a very mature uptrend."

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