One need only look at the oil and even more so, gold price chart action. In each case, an argument to be made for the greater fool theory, with gold the most compelling. The price action perhaps even rivaling tulipmania (aka bubble-like market conditions) in 1637.
Oil:
Specifically on oil, interestingly the Nov 19, 2007 edition of the Wall Street Journal noted the real supply/demand imbalance which would fundamentally support $100 and even higher oil prices being not likely to arrive until 2012 when global demand (now at about 85 million barrels per day) catches up with current available output capacity/supply (approx. 100 million barrels per day). So a case here for short term tulipmania in advance of price justification later.
The experts said $80 per barrel oil was absolutely unreachable, then quickly came $90 and but for the Saudi’s stating they would increase production by 500,000 barrels (and then did not), and triggering a pullback, $100 even faster. Oil temporarily peaked with that statement at $99+. With the slight (excuse/respite) pullback then to the upper $80’s, the price moved higher again, finally broaching $100. A pullback now to the high $70’s, low $80’s and then a rise to the $115-120 range before the last fool gets in, is certainly a plausible scenario and outlined in the analysis below.
With China’s insatiable appetite and demand for oil increasing daily, and oil’s impact on Commulism’s growth, oil does represent a key Commulism “impact factor”, therefore an academic assessment of “potential” oil (and gold) price action in the future is important.
Indeed counter-intuitive, this Analyst argues China prefers higher global oil prices. Why? With China’s almost inexhaustible $1.5 trillion foreign exchange reserves, which grow $1-2 billion per day (note this being equivalent to 15-20% daily global oil revenues), it can handle higher oil prices better than anyone. In fact it thrives on higher prices as significantly higher oil prices reduce global demand, allowing China to contract more and more of that dismissed supply.
Therefore, lower oil prices provoke greater global demand, thereby denying China of increased oil supply access to feed its ravenous, oil demanding economic engine, and by default, denying Commulism fuel to grow.
Bottom line, in terms of countering Commulism, lower oil prices and greater global (ex China) demand is better as it reduces China’s access to “lost demand” surplus global oil supply generated from high prices. Thus the need to get quickly through this “Fibonacci price rise” (see Analyst Note below on Fibonacci Technical Analysis) and back to more modest lower oil pricing levels. In other words, hasten the Fed rate cuts and the price rise to point ”D” in the Fibonacci valuation, to accelerate the return to lower oil prices, aka the Fibonacci “confluence pricing” area.
Analyst Note: Since the Analyst makes the case that the price of gold and oil do factor into the Commulism gameplan, the Analyst feels some obligation to provide some mental gymnastic pricing perspective to create debate on where oil and gold prices might be going and their role in the Commulism Response Framework. He uses technical analysis employing Fibonacci ratio methodology to provoke that important pricing debate. It is very important to note however that Fibonacci analysis is NEVER perfect and choosing the right A,B,and C to get D pricing points being the real challenge. Three different Fibonacci experts looking at the same chart may come up with three very unique and different assessments, some strikingly different. However, it is a useful analysis tool to if nothing more, generate needed pricing discussion/debate in the “Commulism Impact Factor” context, as is its sole purpose here.
The Analyst provides his Fibonacci oil/gold price interpretations below for “illustrative and discussion provoking purposes” only.
Therefore, in overlaying and applying Fibonacci pricing points and ratios to the oil price chart to determine the oil price Commulism impact factor, a case can be at least argued for the Fibonacci pricing point ABCD rise as follows:
- Point A (A1) - $47
- Point B - $100 (recent near/intermediate top)
- Point C - $77.5-82.5 (pullback - Note 1)
- Point D - $115-120 (Note 2)
Note1: With the economic slowdown tempered with rate cuts, a less severe pullback is expected. The analyst uses the better case Fibonacci 38.2%. That 38.2 retracement factor was then applied to the $53 A-B rise. The Analyst used $20 plus or minus $2.5 as the resulting potential retracement.
