Oil….Have we missed the bottom… ?

Ok a lot of analysts are calling for lower oil prices, possibly to pre-2000 levels….does it mean  that we are close to the bottom …or possibly that have missed it ?

Whatever the market being traded, there always will be a a question being asked at one moment: How far can this thing go ? Clearly not an easy question to answer as this will invariably depends on factors that are partly unknown or difficult to estimate, such as fundamentals, market positioning or market risk amongst others. The first part is obviously to assess how atypical the move experienced in the given instrument is. This report aims to contribute to this. The below chart shows the Reference Price for the OPEC Crude Oil Basket over the period of January 2003 to February 2015 . at Close of business 16 February 2015 it was trading at 56.43. plot of chunk chartdata In the below I used an R script written by The Sytematic Investor to plot the previous 250 days against other similar historical periods that would have closely matched the recent history. The data has been normalised so as to be on the same scale. The chart shows the latest 250 days in black, and overlay similar historical patterns in grey. It Also shows what has been the price path for the following 250 days as well as the observed quartiles. plot of chunk pattern Finally I plot the last 250 days and a trend forecast derived from an ARIMA(1,1,0) model as well as the 95% confidence intervals. The ARIMA model is fitted to the past 750 historical values whilst ignoring the last 250 days, therefore we can look at the recent price path against the trend forecast and its confidence intervals to gauge how (a)typical the recent move has been. plot of chunk arimaplot