Spike in Crude Oil Signaling 2011 Bear Market
With the investment banking firm Goldman Sachs (Stock Symbol: GS) calling for oil prices to drop as much as $20 a barrel this spring, the rest of Wall Street is betting oil prices will continue their surge.
Policymakers are struggling to convince people that high gasoline prices don’t mean a return to 70s-style “Stagflation” but memories of 2008, when oil briefly soared $147 before plunging as the economy slowed and the “Financial System Collapsed” are still fresh in people’s memories.
When oil spikes, like it recently has, a recession almost invariably follows. In the five prior oil spikes, stocks started a “Bear Market” at least three months before the spike hit its peak. If the current “Oil Spike” reaches into early May of 2011 — it would be one the longest and largest oil spikes on record.
In all five prior oil spikes commodities experienced a bear market. All prior commodity bears started within 22 calendar days of the end of the oil spike at the latest. This corresponds with my previous article, which suggested we should see at least a 36% commodity bear market commence sometime in 2011.
The thin cushion between supply and demand in global petroleum markets this week prompted the International Monetary Fund to raise its oil price forecast by 20%. But Goldman predicted high pump prices will push cash-strapped U.S. drivers off the road and force speculators to unwind massive positions on a further oil price rise.
Crude oil is trading at $108 a barrel in New York as of April 12, 2011 and $123 in London, amid worries that the Middle East will once again erupt in political strife, threatening the global supply of crude oil but as gasoline stocks plunged like Exxon Mobil Corporation (Stock Symbol: XOM), a major dent was placed in the argument that “High Gasoline Prices” are beginning to deter demand.
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