Crude and the Commodity cycle

Over the years we have written many times about the 34-year commodity cycle. Generally commodities rise as a group in a 13-year bull market, which is followed by a 21-year bear market. Each specific commodity has its own particular cycle which generally fits within the broader 34-year commodity cycle.

A bullish phase of this cycle started about two decades ago in 1998, and ended in 2011. A bear market, lasting about 21-years, has been underway since then. Sorry gold bugs! During the bull market phase some commodities rise in five waves. During the bear market phase all commodities decline in three larger waves. Naturally, just like there are corrections in bull markets, there are rallies in bear markets. Commodities, in general, are currently in one of those bear market rallies.


When one looks at a Crude chart covering nearly 50-years, one can clearly see two periods of rising prices and two periods of declining to sideways prices. While these rising and declining periods may look sporadic, they are actually quite regular when one knows what to look for. As we will explain in the following chart.


The two rising periods were actually five wave 10-year bull markets, i.e. 1970-1980 and 1998-2008. These two bull markets were separated by an 18-year bear market, i.e. 1980-1998. The rise during the bull markets were quite spectacular. Well over 1000% in such a short period of time. Price rises like these always lead to excess-capacity events. And these events are normally followed by nearly as spectacular declines. Which eventually cuts capacity until supply/demand reaches an equilibrium. We are in one of those equilibrium periods now.

With Crude 8-years into its bear market, and at least a decade away from starting a new bull market, we can already see a pattern unfolding which is relative to its previous bear market. To see this pattern one needs to review the larger waves first. During the last bear market Crude declined from 1980-1986, rallied to 1990, then declined from 1990-1998. A 6-year decline, then a 4-year rally, followed by an 8-year decline.

Since the current bear market just had an 8-year decline, 2008-2016, we should look into the last 8-year decline. Then the 8-year decline unfolded in three waves [1990]: 1994-1997-1998. Now the 8-year decline has also unfolded in three waves [2008]: 2009-2011-2016. Notice 1990: 4dn-3up-1dn, and 2008: 1dn-2up-5dn, nearly the exact reverse or mirror image. If we consider this a completed pattern, and we do, the next thing that should occur is a choppy 4-year bear market rally, i.e. 1986-1990 or 2016-2020. Therefore the $26 low should be the low for at least the next four years.

How far could Crude advance? During the last bear market all rallies, excluding the aberration from the Kuwait invasion, retraced 38.2%, 50.0%, or more of the previous larger decline. This suggests an upside target between $70 and $85 by the year 2020. Then, after that, a six-year decline into the final bear market low, which should be around the $26 area. In summary one should expect a price range between $25 and $85 over the next decade. Unless there is a supply-event, which could push the upper range higher.

About tony caldaro

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21 Responses to Crude and the Commodity cycle

  1. learnedmylesson25 says:

    I read your 2013 view on commodities and gold (which at the time was around $1300).You thought a rally in 2014 would take it to 1545 in 2014,but of course,the bear lasted until 2016,driving prices down to $1045.What did the extra 2 year decline do to your analysis of gold?Could gold tag along with crude until 2020?Thanks Mr C.


  2. amy8walter says:

    Tony… much thanks for the oil info! Always enjoy reading your blog:)!


  3. In 1974 there was a sharp move in price,$4 to $12
    if $12 is take as the base,in 2016, inflation adjusted,oil would be ~$60


  4. ramdigitaldoc says:


    This makes a lot of sense.

    Looks like we should overweight oil. Upside target in 4 years about $70-85

    Richard ________________________________


  5. Page says:

    WOW!!! Thanks Tony. Great analysis.


  6. torehund says:

    Thanks Tony.
    Crude is certainly a wild one, from 1970 an abc up to the 147 usd (or 2 waves up, you choose).
    From top at 147 there is an a down, an X (or b) and c may be in already. However I think its going ugly and the down-phase isnt yet in, so from 147 top…an a wave down, the x, b up to 50 usd (recent high) and c awaits descending to around 10 usd fully closing the 1998 gap.
    This concurs with the ongoing Usd bull-market, which is just starting (as I see it).
    In the latter scenario the Euro and exotic currencies will be pulverized.


  7. Thanks Tony,
    And why not bulls a bears markets both in ABC movements,up and down,oscillating with economy health,and the difference of two consecituve bears bottoms been the adjusted inflation on the price ,no real gain in this period of time


    • tony caldaro says:

      What would determine the “real” rate of inflation?


      • Tony,the USD inflation,but i was forced to extend this period
        since 1974 with oil at $4 till 2016,USD inflation is nearly 400%,inflation adjusted oil would be $20 now,if the expected second bottom for this correction is $25, an inflation for the USD of 25% is expected for the next 10 years,that seems reasonable,thanks


  8. Lynn Howells says:

    Why say sorry to the Gold bugs Tony?
    I appreciate the main comments are on crude.
    Is gold truly a commodity?
    What about the Fed balance sheet relationship to the price of gold, gold has a lot of catch up to do which suggests to me a new bull market not a bear market rally


  9. davidshort96712013 says:

    I think its more of a $ down commodities up expressed in $ story. Fun to go look at the charts again inflation adjusted ? Thanks again Tony.


  10. fotis2 says:

    Much obliged Tony you made my day on Crude!


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