Larry Edelson: The bear market I’ve been tracking for you isn’t confined only to gold.
I warned you quite some time ago that the price of crude oil would fall substantially, to below $70 a barrel and quite possibly lower, before it bottoms.
Since Oct. 16, oil has plunged from $102.49 a barrel to $94.11, an 8.2 percent hit.
More losses are coming for oil. This monthly chart confirms it.
|Click for larger version|
As you can clearly see, oil’s rally since its 2009 crash-era low has been choppy, with overlapping waves. This is not the kind of action that is conducive to a bottom.
Instead, it’s typical of a bear market that has not ended, and that has another leg to the downside coming.
That leg down is beginning now. Major technical support lies at $60-$62, and should that give way, oil will not bottom until it falls to as low as $40.
Hard to believe, when there are so many die-hard oil bulls out there? When there are so many political hotspots around the world that could cause oil to rally?
Well, that’s what they said about gold back in September 2011 when the Fed announced QEIII. No way, they said, could gold go down. But it did, and it fell hard.
From a fundamental point of view, oil is not bullish. Oil inventories have been rising for seven straight weeks. Last week, they rose 5.2 million barrels. Over the past four weeks, inventories have risen by 22 million barrels, the second largest increase since February 2009.
|Oil inventories have recently seen the second largest rise since February 2009.|
What’s especially difficult for oil right now is Europe. The euro region is in a freefall. Almost every country in Europe is contracting, severely. Unemployment continues to soar. Disinflation has tightened its grip, with the latest inflation data so bad — at 0.7 percent year-over-year, that the European Central Bank cut rates to 0.25 percent, a record low.
In addition, the U.S. is well on its way to 100 percent energy independence. OPEC is losing control over the energy markets, and right now, that’s hugely bearish for crude oil.
But mark my words, once oil bottoms, a new bull market will be hatched.
How so, when there are do many dynamic changes occurring in the oil market, with the U.S. set to become energy independent?
There are three reasons oil will soar again, after it bottoms.
First, there’s China. While China is home to oodles of natural gas, its economy is still oil thirsty and will be for a very long time.
In September, China surpassed the U.S. as the largest buyer of oil in international markets. China’s net oil imports reached 6.3 million barrels a day, passing the U.S. at 6.2 million barrels per day, according to U.S. government reports.