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Oil Back Above $112. Higher Highs Ahead?

Crude Oil Chart

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May 01, 2011 - Oil Back Above $112. Higher Highs Ahead?
By Elliott Wave

You may have noticed that crude oil's recent rally has been rocky. Prices suffered a big setback in early March, when oil lost 10%. More losses came a few weeks back, when on April 11 and 12 crude fell from near $113 to $106 a barrel.

Here's how some of the mainstream energy market analysts explained that recent decline:

"Oil fell, capping the biggest two- day drop in almost 11 months, after the International Energy Agency and International Monetary Fund said that prices above $100 a barrel are starting to hurt the global economy." (Bloomberg, April 12)

That sounds like a perfectly reasonable explanation. It also sounds like the energy market took the IMF's warning to heart last week -- and lowered oil prices to $106 on April 12.

So why is oil trading above $112 again this week, if just a few days ago the energy market was concerned that oil above $100 would derail the global economic recovery?

The media has many answers to this question: from a drop in the U.S. crude oil reserves to the "improving outlook for the global fuel demand."

But surely you can spot the irony here: Oil rising due to the "improving fuel demand" implies improving economic growth. But how can the global economy improve if oil above $100 is supposed to hurt it?

It's like that popular cell phone company TV ad says: "Makes sense if you don't think about it."

After all that, you may still be wondering just where oil prices are likely to go from here. Well, take a look at this forecast excerpt from EWI's Energy Specialty Service. It was published on Friday April 7, when oil was still trading at $113 and right before it dropped to the $106 level:

"Trend remains up... Near term, however, price is becoming more vulnerable to a downward decline that has reasonable potential to probe towards 111.04-107.50."

Note that this forecast was made 5 days before that April 12 warning from the IMF. Note also that the forecast called for both the decline to the $106 low and the subsequent rally -- which has already taken oil above $112.

Our Energy Specialty Service made that forecast based only on Elliott wave patterns in crude oil charts. Wave analysis is not a crystal ball, but it gives you much more objective metrics than guessing about the impact of "fundamentals." The latest energy market forecasts are online right now.

Click here to discover the next opportunity in oil for yourself with help from an Elliott wave expert.

Tap into editor Steve Craig's vast 30-year experience right now with EWI's intensive Energy Specialty Service. You'll get his actionable forecasts complete with price targets and key levels for crude oil, natural gas, energy ETFs and other global energy markets.

Click here to learn more about EWI's Energy Specialty Service

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