The market rallied on Thursday simply because the price of oil spiked.
Does this mean that a bottom in oil has finally been found? Maybe, but Jim Cramer thinks, given the history of oil, that could be harder to predict than most expect.
When Cramer was recently researching the history of crude oil, he came across various articles written last year at this time, when oil was in the high $40s.
The talk back then was all about whether oil would have a V-shaped recovery back to $100, or if it would be a U-shaped recovery back to $70.
“I could not find anyone who thought that oil would break down hard from those levels,” the “Mad Money” host said.
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“If there is one thing we can learn from reading the back pages, it is that nobody seems to know anything about nothing when it comes to the price of oil”
Even the biggest of bears, Goldman Sachs, which accurately predicted oil would go much lower to $20, forecast higher prices by the end of 2015.
Cramer also spoke with Rusty Braziel, the head of RBN Energy and author of “The Domino Effect.” He recommended Cramer to look at a similar spike and crash that occurred in 1986.
“It’s a little eerie, frankly,” Cramer said.
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On Jan. 6, 1986, oil stood at $26.53 — the same price that oil traded on Wednesday. Less than three months later, on Mar. 31, 1986, oil traded down to $10.25.
All of the U and V-shaped recovery predictions this time around were predicated on the idea that Saudi Arabia wouldn’t commit oil suicide by cutting price. But they have done it before, and Cramer wondered why anyone would think that they wouldn’t do it again.
And as long as the U.S. producers keep pumping oil, so will the Saudis because their mission is to drive U.S. oil producers out of business.
Could oil go down to $10? Cramer considered it possible, although adjusted with inflation $10.25 in 1986 would be more like $22.34 in 2016.
“Considering the history, I guess you could say it could happen again, because if there is one thing we can learn from reading the back pages, it is that nobody seems to know anything about nothing when it comes to the price of oil,” Cramer said.