For a good portion of this year (down to $64 in particular) we have had a bearish view on Oil.
On 10 December we published a note stating that we believed Oil could bottom out this week. We have refreshed this below
A big part of this view has been predicated on our assertion that 2014 is “1998 lite” when: Oil fell during the period of local market stress; we saw the Russian default and economic collapse; the S&P fell 22% into October; yields fell sharply into October; we saw a correction of USD strength into October etc. As we know despite all this the Fed was raising rates in June 1999.
We have taken this focus a little further and looked at periods where Oil has fallen “precipitously” and hit its low in December of that year.(Which it did in 1998) Outside of this year there have been 3 such instances going back over the past 30 years. The statistics on these are interesting and noted below.
41% as of today
Bottom line: We hold with our view that a base is forming this month in Crude Oil and that we will see a significant rally next year. If the history above is a guide we will likely bottom out in the coming days and finish the year close to $62.