Criticality Characteristics of Current Oil Price Dynamics

TL;DR

This paper applies a methodology based on discrete scale invariance and log-periodic analysis to understand oil price dynamics, predicting a bubble decay and a price reversal around mid-2010.

Contribution

It introduces a novel application of scale invariance concepts to oil prices, predicting bubble behavior and timing of price reversals.

Findings

Prediction of oil price reversal around mid-2010

Identification of a super-bubble phenomenon in oil prices

Log-periodic deceleration observed in recent price decline

Abstract

Methodology that recently lead us to predict to an amazing accuracy the date (July 11, 2008) of reverse of the oil price up trend is briefly summarized and some further aspects of the related oil price dynamics elaborated. This methodology is based on the concept of discrete scale invariance whose finance-prediction-oriented variant involves such elements as log-periodic self-similarity, the universal preferred scaling factor lambda=2, and allows a phenomenon of the "super-bubble". From this perspective the present (as of August 22, 2008) violent - but still log-periodically decelerating - decrease of the oil prices is associated with the decay of such a "super- bubble" that has started developing about one year ago on top of the longer-term oil price increasing phase (normal bubble) whose ultimate termination is evaluated to occur in around mid 2010.