And why they started to slide in the first place…

Public (Economic) Enemy Number One — the soaring oil market — has been caught. The damage from its record-smashing rally contained. To wit: From their all-time July 11, 2008 peak, crude prices have plunged a jaw-dropping 20% to a three-month low.

As for seeing the cage come down around crude’s meteoric rise BEFORE it did – well, the vast majority of the warnings coming out of Wall Street back in July were of the “no end in sight for energy crisis” kind. Here, the following news items from the time say an earful:

  • Iran fires missiles at Israel + Israel flies warplanes over Iraq + The Movement for the Emancipation of the Niger Delta declares an end to a two-week ceasefire = “Geopolitical premium… Ultimately, we’re still in a raging bull market. I expect the price to go up to $152.” (CNN Money)
  • “If tensions in the Middle East escalate, it would probably result in crude prices skyrocketing to $200 to $300 per barrel.” (AFP)
  • “Investors bet on $300 oil.” (Financial Times)
  • “Support for crude came… on speculation US mortgage losses will deepen, increasing the demand for commodities as a hedge against inflation. It would be a brave analyst to call the end of the upward momentum in prices.” (Bloomberg)

Yet – one such analyst did exactly that. On July 10, one day before the “capture” of crude’s climb, EWI’s Energy Specialty Service analyst Steve Craig acknowledged the downside potential in the market’s near-term future and wrote:

“Two key topping indicators are still evident – extreme bullish sentiment and relentless media attention. Possible third and fourth signs – volatility and cries for more government regulation of commodity trading – are nearing their heads… It all points to a very mature uptrend.”

(How Low Is Oil Set To Go? The August 6 forecast insideEWI’s Energy Specialty Service includes in-depth analysis and original price charts for OIL on every time frame: Daily, intra-day, weekly, and monthly. Learn More)

In addition to supplying the above insight, the July 10 Energy Specialty Service commentary also presented the following chart of Crude prices since the year 1859 — when the first commercial oil well was drilled in the United States. (Some of the Elliott wave labels have been erased for this publication)

This historical close-up provides one of the most comprehensive and objective evaluations of crude’s long-term trend out there. The picture can be seen in its entirety, along with a new Video Update of Oil online now, on the August 6 Energy Specialty Service End-Of-Day forecast page. Click here for all the details.

Timing takes up a huge part of the trend-catching pie. Consistency is the other big piece. Fundamental analysis fails on both fronts, as many of the same outside factors cited as the cause for crude oil’s rise to an all-time high WERE still very much in place during the market’s recent 20% sell-off.

In fact, most are still here. See: Mounting political tensions as former Israeli defense minister calls Iranians “the root of all evil,” and the U.N. Security Council votes to increase sanctions against the Islamic Republic.

Also: Violence in Nigeria continues to escalate, violent tropical storms continue to threaten the Gulf Coast, “Peak Oil” theorists continue to hoot-n-holler while famous oil tycoon T. Boone Pickens becomes a leading advocate of alternative fuels, and the U.S. mortgage crisis shows no signs of bottoming.

Forecasts for oil and other energy markets you will find inside EWI’s Energy Specialty Service are not based on any of those “factors.” Subscribe now and see the difference for yourself.

Elliott Wave International