Once the a high-flying commodity and the scourge of all who drive, crude oil has gone from the penthouse to the outhouse in a matter of a few months for oil bulls. It was only a few months ago that Congress was grilling all the large oil executives over crude prices and the record profits that were earned at the expense of all Americans. In the end, the brunt of the blame was being shouldered by the nefarious oil speculators.

From the low of 51.20 in January 2007 to its peak of 147.20 in July 2008, crude oil (continuous contract) was seemingly unstoppable. Of course, the whole world has changed since July's peak, as the bank failures and credit market freeze has brought world economies to its knees. Even crude oil has not been able to withstand the economic slowdown, as it has declined over 70% since July.

Crude Oil Continuous Price Monthly Chart


Barron's Calls for a Bottom in Oil

Some are anticipating the return of higher crude oil prices. In their January 26th edition Barron's ran a cover story saying "Buy Oil." Thus far, those who followed this venerable publication's advice have not been rewarded, as oil has been flat to slightly lower since the article ran.

Thus far, those who followed this venerable publication's advice have not been rewarded, as Oil has been flat to slightly lower since the article ran.

Often, cover stories featuring major predictions/calls by more "mainstream" publications like Barron's, Business Week, etc, have been good contrarian indicators -- meaning the articles have been wrong. It seems that by the time a major publication features a particular business trend, the trend is near the tail end of its run. Like many business trends, the stock market is a discounting mechanism and by the time an editor is convinced to dedicate a cover story to its magazine, the trend has likely been played out. This is even more likely to be true when trends hit the mainstream non-business media. For example, the large number of stories about how to become a Day Trader came at the height of the Internet Bubble, and the large number of reality TV shows about "flipping houses" that emerged just as the Housing Bubble was about to burst.

Historically Ill-Timed Covers

One of the most effective contrarian magazine covers was the March 1999 cover of The Economist titled "Drowning in Oil." This was when oil was trading between $12 and $17/barrel.

Another good contrarian indication (but a little early) was the May 31, 2008 cover of The Economist titled "Recoil" with a graphic of a $135 oil barrel. Both the 1999 and May 2008 covers of The Economist marked key inflection points in the black gold. A less impactual cover story from The Economist was the August 2005 edition titled, "The Oiloholics."

In the accompanying crude oil chart, we put the cover stories on price chart for oil.



This kind of magazine-cover sentiment based analysis is certainly not 100% accurate -- but there have been numerous incredibly accurate examples in the past time-and-time again of the major media jumping on a trend just when it has peaked. Based on my experience, it seems that they are more likely to be "wrong" when they are riding a parabolic uptrend or bubble at the top, than when they are trying to call a bottom in something.

Bottom Line: I do not foresee an imminent oil price rally, rather I see crude oil prices remaining in a $30 to $50 price range for some time, with $20 and $60 as outliers of the range.

Price Headley is the founder and chief analyst of BigTrends.com.