Just for laughs I went back to read articles about oil written this time last year, when oil was in the high $40s.
The talk back then was almost all about the shape of the letter. Were we going to have a "V" recovery, which would put oil on a course back to $100, where it was before the crash began in June 2014. Or would it be a more of a meandering back, via a "U", where it might not be any higher than $70 a year later, as in now.
I could not find anyone who thought that oil would break down hard from those levels, and even the biggest bears now, the people from Goldman Sachs -- who accurately predicted that oil was going much lower (price target $20) when oil was in the $40s last fall -- were predicting a slow return to higher prices by the end of 2015.
Maybe, though, we shouldn't be so shocked. Last night, Rusty Braziel, author of the best-selling The Domino Effect, and the head of RBN Energy, sent me a picture of a similar spike and crash that occurred in the 1980s: namely the January to March pummeling in 1986.
It's a little eerie familiar. Oil was at $26.53 on Jan. 6, 1986, just where it traded to yesterday. Less than three months later, on March 31, 1986, oil traded down to $10.25.
Several things amaze me about the comparisons and are ironic. First, we often hear that the strong dollar is behind the decline in oil now because oil is priced in dollars. But that stunning decline came during the biggest and fastest collapse of the dollar any time last century, a 40% pummeling in just a few months' time. So don't buy into the glib "it's the dollar that's driving the bus" talk because if the dollar stops going higher, you could be on the wrong side of the next leg of the trade.
Second, we heard a lot this time around how we couldn't have this kind of boom/bust cycle because so many oil drillers would just be able to quickly close the tap and oil would come right back up.
Nonsense. The tap stays open because the debt has been paid. I have been going through some of the balance sheets of really good companies that went off the deep-end at the high and it is astonishing how much debt some of these companies took on.
All of those "V" and "U" predictions were also predicated upon the idea that the Saudis wouldn't commit oil suicide by cutting price. But they've done it before. Why did we think they wouldn't do it again? Plus, we are all surprised they have kept pumping so hard for so long, but that's missing the key point that U.S. production has barely dropped year over year. They have not accomplished their mission yet.
Will oil go to $10? Did it before.
Because it did, I guess you could say it could do it again, because if there is one thing we can learn from reading the back pages, nobody seems to know anything about nothing when it comes to the price of oil.