(LONDON) Crude oil may plunge to less than US$10 a barrel in the next decade after surging to a record US$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 US$10 a barrel sometime over the next decade,' Mr Prechter, founder of Elliott Wave International Inc, said in an e-mail on Wednesday. 'It took many years for it to achieve US$147.50, and it will take a long while for the full retreat to occur.'
Oil should fall to between US$4 and US$10 a barrel based on a technical analysis called Elliott Wave principle, Mr 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 high of US$147.50 on July 11, 2008 before tumbling to US$33.20 on Jan 15 this year on expectations that the global recession will sap demand for fuels. Oil has since more than doubled to US$70.70 a barrel in New York.
'The Elliott-Wave picture pretty much assures us that there will be no additional waves of advance to extend the 'peak oil' mania,' Mr Prechter said in the report. 'On the contrary, if five waves are complete from the early 1990s, oil should fall to between US$4 and US$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, Mr Prechter said, citing wave and cycle analyst Harry Dent, who showed a 29-year cycle in commodities, with past peaks in 1920, 1951, 1980 and 2008. Two weeks after Mr Prechter warned in 1987 that stocks would crash, the Dow Jones Industrial Average plunged 23 per cent. He advised betting against US 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. - Bloomberg
