On December 14, President Barack Obama declared the end of the near-nine-year-long Iraq War. And, according to many mainstream financial pundits, when the U.S. troops leave Iraq, a new bear trend will be "occupying" the crude oil market.
Their reason stems from the age-old "fundamental" analysis notion that "war is bullish for oil"; and conversely, the end of war, bearish.
So, are they right? Well, take a look at the chart below.
It's a historical close-up of oil prices that includes the entire time period of the 2003-2011 Iraq War. If there TRULY is a consistent correlation between a rise in battle and a rise in black gold prices, where would you label the start of the war?
Answer: Right where the red "X" marks the spot. The start of the war would coincide with the start of crude oil's rising bull trend.
This, however, is not the case. The next chart illustrates the actual time period.
Check it: Oil prices embarked on their decade-plus long bull run in December 1998, at the hard-to-believe low of $10.35 per barrel. At the time, the seeds of a U.S. led invasion into Iraq had not even been sown. In 1998, the U.S. was high on a dotcom AND housing hog, enjoying the fruits of a soaring stock market, low unemployment, the first federal budget surplus since 1969, and a conflict-free global relations front. Yet, from its 1998 low to the year the Iraq War began in 2003, oil prices rocketed more than 250% despite the total absence of a disaster-hedge.
Now, here's the second point: If there were a consistent relationship between rising conflict and rising crude prices, then the trajectory of oil prices on the chart since the start of the Iraq War in March 2003 would move in one, uninterrupted direction: UP.
Again, you can see this is not the case. Since 2003, oil prices have been about as smooth as an Alpine mountain range. They culminated in the historic crash of July 2008, when crude oil prices plummeted nearly 80% -- this time, despite the ongoing Iraq conflict..
As you can see, there are more holes in the "fundamental" theory of oil price formation than a rusty oil barrel. Do you know what method was actually able to foresee oil's 2008 reversal? (Hint: It's not a method that relies on "fundamentals.")
One month before oil's 2008 epic fall, EWI President Bob Prechter set the stage for energy's coming slide in his
June 9, 2008, Elliott Wave Theorist. There, Bob wrote:
"I am publishing this issue a bit early in order to alert you to an opportunity developing in the oil market. Oil is due to peak soon...One of the greatest commodity tops of all time is due very soon.”
And when oil prices reached their bottom near $30 a barrel five months later, EWI's December 2008 Global Market Perspective turned bullish and wrote:
"From a technical perspective, the market remains oversold and price is diverging against several key measures, including sentiment, which combine to suggest that the market is in the final stages of the decline."
What was the basis for these well-timed insights? Only one thing: Elliott wave analysis. Our model is the Wave Principle, the essence of which states that financial markets progress in terms of one simple formula: five waves in the direction of the trend, and three waves in the opposite direction.
And, in our final chart of the day -- from EWI's trader-focused
Energy Specialty Service -- crude oil has fit the five-wave up model to a T.
So, what are you waiting for? Stay in front of crude oil's next big move via the service of your choice today: