Last fall I published an analysis of oil markets (https://lnkd.in/ghBwNMf9), together with some predictions for the year ahead (i.e. 2022). This post looks at how these predictions did. Last year's article also summarized a series of pieces published over the preceding decade in which I lay out a thesis that volatility in oil price since 2000 has developed a striking oscillating pattern. This cycle is marked by phases of elevated instability in oil markets that repeat every 3 to 4 years, with past bouts of volatility having occurred in 2001, 2005, 2008, 2011, 2014, & 2018.
Links to these earlier articles are listed with my podcast
interview with author James Kunstler - https://lnkd.in/gGKqzTHN.
Three predictions were inferred in the 2021 article:
1: The next bout of oil price volatility would initiate mid-Nov 2021 &
2: If this next wave of volatility occurred, disruption would ensue in stock markets in outgoing months
3: & would be associated with increased inflation.
So how did these 3 predictions do?
1: Oil price volatility first spiked on Nov 29 2021, with the largest peak in the current phase cresting early March 2022.
2: From Jan to Sep 2022 the stock market showed remarkable volatility, including swings down from highs of >25 % (S&P).
3: Since Dec 2021 inflation has been above 7 %, rising to 9.1 % in June 2022
Overall, the sequence has played out pretty much as it has during the past 6 waves of the cycle. If you look at the articles linked to the Kunstler podcast it’ll be seen that similar predictions were made on oil price and downstream impacts on the stock market in 2011, 2014, & 2018.
There is no magic to these forecasts. With with the aid of derivative calculus, fast Fourier transformation and basic statistics, it has not been that difficult to make accurate predictions based on an oscillation that has maintained a relatively fixed structure over 25 years.
As straightforward as the technical side/math has been, the head-scratcher is that few seem to recognize or understand the danger that this phenomenon poses to our economy and indeed, civilization at large. Having said this, it is interesting that Mr Putin’s illegal invasion of Ukraine (on Feb 24), coincided to within days of the crest of the 2022 wave. Important here is that the heralding spike of the present wave occurred on 29 November 2021 (as enumerated above), well before the invasion. This means that whilst the Ukraine war was probably an amplifying factor, its effects likely occurred downstream of the ultimate cause of the present phase of oil price volatility. I'd posit that this ultimate cause is whatever is driving the underlying multi-year oscillation, which in past essays, including the 2021 article linked to this post, has been speculated to be Peak Oil-related.
It might further be speculated that Putin's timing was purposefully aligned with a phase during which he calculated the West would be weak, based on past consequences of the cycle of instability on our economy and politics. That Putin is intimately familiar with the details and downstream implications of fluxes in oil markets would be unsurprising given the centrality of fossil fuels to Russia, though we will probably never know whether this was factored into his calculations.
In closing, the next transient phase volatility in oil price in the cycle is likely to start sometime between the latter half of 2025 and the first half of 2026.