Market Insights: Where will oil prices go from here?

 

Where will oil prices go from here?

We are all asking the same question, but perhaps the best roadmap for future oil prices is to look in the rear view mirror for answers.  Here is a fantastic chart from BlueHawk Wealth Management:

 

 

This history of events only goes back thirty years but at least it is a good sample size of all the recent oil downturns.  Our current leading indicators are showing very close to no likehihood of recession over the next twelve months, so this could perhaps remove the instances showing black above as decent comparables.  It would be important for us to at least note that in all of those previous declines of 35% or more, there was not one case where the price of oil was lower over the next twelve month period.  

We would think the 1986 scenario is the closest fit to today.  Oil prices have actually declined even further than the -42% depicted above and closer to the number in 1986.  We are also in a period of PE multiple expansion in U.S. Equities.  The one glaring difference is the decline in drilling activity has not dropped off near to the extent as it did then.  In our Q4 2014 Market Commentary we discussed these similariites in more depth.   It will be interesting to look back at this chart at the end of this year.