Crude Oil Repeating the Pattern from 1985 to 2008

timwest Premium Updated   
I posted this pattern originally back in 2019 which showed the relationship between sharp drops in crude oil prices and the resulting support levels created in the stock market, as measured by the $SPX500 S&P500 Index.

Crude oil has basically gone sideways over the last 40 years when adjusted for inflation and when you factor in efficiency in that we get 22 mpg on average now in our vehicles vs closer to 10 mpg back in the early1980's. Essentially, the price of oil has only kept up with inflation .

When there is a spike in crude oil , it sets the seeds of its own destruction. We figure out how to use less and save more and find more oil . In this latest spike, there is a strong move again to save in the form of solar panels, battery storage and natural gas . Time will tell how the current pattern pans out.

The historical pattern suggests downside risk of 30%-40% for crude oil and upside of 200% which is a decent 10 year risk/reward ratio. If crude oil falls 20% from current levels near $84/barrel on 9/22/22, the risk/rewards gets extremely attractive as it drops to down 40%. The upside potential becomes 400% and the downside risk is 10% or less at that point.

Stay tuned!

Tim West

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Here is the link to the original chart with much more detailed information for your review.

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