Prechter: Oil will crash to $10 a barrel

By Dinakar Sethuraman

Aug. 13 (Bloomberg) -- Crude oil may plunge to less than $10 a barrel in the next decade after surging to a record $147 last year, said Robert Prechter, who achieved fame for cautioning on Oct. 5, 1987, that stocks would crash.

“I expect crude oil prices to fall below $10 a barrel sometime over the next decade,” Prechter, founder of Elliott Wave International Inc., said in an e-mail yesterday. “It took many years for it to achieve $147.50, and it will take a long while for the full retreat to occur.”

Oil should fall to between $4 and $10 a barrel based on a technical analysis called Elliott Wave principle, Prechter said in the Elliott Wave Theorist report last month. The forecast rests on a “supercycle” theory, which through a series of five waves from last century suggests a decline from last year’s peak.

Crude oil in New York reached a record in July before tumbling to $33.20 on Jan. 15 on expectations the global recession will sap demand for fuels. Oil has since more than doubled to $70.70 a barrel in New York. Brent oil rose to an all-time high of $147.50 on July 11, 2008.

“The Elliott-Wave picture pretty much assures us that there will be no additional waves of advance to extend the ‘peak oil’ mania,” Prechter said in the report. “On the contrary, if five waves are complete from the early 1990s, oil should fall to between $4 and $10 a barrel, which, needless to say, supports our deflationary outlook.”

Commodities may have peaked last year and the next major top may be in the late 2030s, Prechter said in the report, citing wave and cycle analyst Harry Dent, who showed a 29-year cycle in commodities, with past peaks in 1920, 1951, 1980 and 2008.

Equities Market

Two weeks after Prechter warned in 1987 that stocks would crash, the Dow Jones Industrial Average plunged 23 percent. He advised betting against U.S. equities three months before the market peaked in October 2007. In February 2009, he recommended ending that bet in anticipation of a “sharp and scary rebound.”

Technical analysis involves making predictions based on price and volume history.

The Elliott Wave principle is named after Ralph Nelson Elliott, an accountant who developed the concept in the 1930s, proposing that market prices unfold in specific patterns, which practitioners today call Elliott waves.

Last week, a Chatham House research fellow forecast that crude oil may reach $200 a barrel in the next five years as the global economy recovers from the recession and demand for the fuel increases.

Crude supply will be tight when demand rebounds because national and international companies haven’t spent enough on exploration and development, Professor Paul Stevens of the London-based research group said in an e-mailed statement.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.

Last Updated: August 13, 2009 01:52 EDT


I found this online at Bloomberg