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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Oil Crisis and Gold

Commodities / Crude Oil Jul 08, 2008 - 11:16 AM GMT

By: David_Vaughn

Commodities One of the hardest things about life is when we have to close a chapter. Yesterday becomes merely a collection of happy memories and those memories are all that remain. That perhaps is why we have always clung so hard to nostalgia. The world is constantly changing and that unfortunately even includes our own lives. In life personal actions always produce consequences. Unfortunately, this principal even includes things of material value. And the consequence of less oil produces the consequence of higher prices.


“Oil prices climb up to 146 dollars per barrel” “Oil soared to a record above US$145 a barrel Thursday, fueled by concerns over a larger-than-expected drop in U.S. stockpiles and the threat of conflict with Iran.” “Comments by Saudi Arabia 's oil minister suggesting his country had no immediate plans to boost production also helped lift prices.” “Expectations that the European Central Bank will raise interest rates later Thursday could further weaken the U.S. dollar and drive oil prices even higher…” english.pravda.ru

I'm tired of paying high gas prices. How about you? I anticipated this time for many years and knew it would be inevitable for the price of oil to rise some day. What is the reality we are experiencing today? Is this a temporary bubble or an indication that maybe demand is chasing supply? As a nation we really had become complacent about cheap oil. We thought it would stay cheap forever. We believed it would be a problem saved for our grandchildren. It seems a new era is upon us that we as a people have not yet grasped.

Doug Casey - “… the boom was financed largely by debt, which made everybody feel and act much wealthier than they really were. It's as though you borrowed a million dollars and spent it all on wine, song and high living. For a while, you'd have a high standard of living and perhaps have a lot of fun. But eventually, when you either paid the money back with interest or were forced into bankruptcy, your standard of living would take a painful drop. The U.S. , in particular, has been living far above its means, burning up its own capital and trillions more borrowed from abroad.” “It seems to me a near certainty that we're about to enter something I have long called “The Greater Depression.” kitcocasey.com

Of course the real question before us is our desire to know if the world really is running out of oil. The U.S. now imports over 60% of its oil. And the chances do not look too good that oil is ever going to be drilled on American shores. Many analysts personally speculate that oil has been in a decline for 30 years even though this is still a hotly debated opinion. Every day now the oil price continues to rise and no one can attribute that fact to anyone's imagination.

“The Democrat-controlled House of Representatives is expected to pass a popular, if largely symbolic, measure this week that would declare that Opec efforts to control oil prices are illegal and give the US attorney general the authority to sue the cartel.” “HA! This is the most hysterically funny thing I've seen in a very long time. Can you see it now? Opec being sued and losing the beach house and custody of the kids? This is good, good stuff.” lis.newsvine.com

Many speculators believe this to be a cyclical phase and keep waiting for oil to begin dropping again in price and back to those old days of 10 dollars a barrel. Do you really believe we will see those days again? And does anyone anywhere really know how much oil there is left in the world? What should be the appropriate price for a barrel of oil? The analysts at Goldman are forecasting a spike up to 200 dollars per barrel. A lot of the data on oil is contradicting and confusing to understand.

Mike Swanson  -  “As I wrote last week though I do not believe we'll see the Fed raise rates this year, because I'm expecting the bear market in stocks and further banking problems to force them to stay on hold. Once this becomes clear to the market - which I think will happen in the Fall - I'm expecting we'll see some real fireworks - with steep losses in stocks and the dollar - which will lead to an explosion in the price of gold.” kitco.com

No one really knows for sure the exact level of current and future reserves. Oil really exists in a category all by its lonesome self. Most oil producing countries simply do not provide reliable and proven information concerning their precise reserves. The International Energy Agency is expected to produce a report soon illustrating a significant reduction in the world's true oil reserves. And what about China ?

“Soaring oil prices have not slowed China's consumption of oil as statistics show that China's apparent consumption of crude oil and refined oil products both hit record highs in the first quarter of the year.” news.xinhuanet.com, 2008

We cannot talk about oil consumption without always bringing up China and the rest of the Asian world. China is continuing to produce ever higher volumes of automobiles for its citizens and that number continues to grow considerably. Over the next decade and beyond it is estimated that China will produce hundreds of millions of cars for its expanding middle class. This fact all by itself is going to drive the price of oil higher long term. And in not too many years from now China will be burning the same amount of fuel as America . Just consider that fact alone.

“What a difference four or even two years make in the life of Chinese auto manufacturers. Their growth is well documented: China has gone from virtually no auto industry a decade ago to annual sales of more than 10 million vehicles.” autoobserver.com, 2008

Increased demand for oil is only going to tighten competition for future remaining oil sources. I can envision wars being eventually fought just over oil in the near future. China 's oil imports rose around 13% just in the first half of 2008. And you believe gas prices are going to go down significantly again? China has no desire to conserve their use of oil as they need this source of energy for their continued expansion. And how about bringing Russia into the mix?

“Last year, BP and its partners were under intense pressure to sell a large Siberian natural gas field to the Russian state-controlled gas monopoly, Gazprom. The government had cited violations of a drilling license. A year earlier, Royal Dutch Shell had been pressured to sell a controlling stake in the world's largest oil and natural gas development, Sakhalin-2, to Gazprom. In that case, the government cited environmental damage in a pipeline project.” Herald Tribune, 2008

Russia is squeezing out Western oil companies thus raising the stakes of even higher oil that will drive oil speculators into turmoil. The next crazy spike in oil may even now be preparing for late 2008. Russia would like to see its own state controlled oil industry raise its stakes and cancel western contracts. So, what does the future hold for oil?

“Sadly, the United States of America , the world's most advanced economy, has no fuel gauge of any sort to indicate when our useable spare supply of crude oil and (refined) products is nearing empty. And the stock data of the USA is the best published oil data of any country…” “None of this would be alarming if ‘peak oil' was decades away. But, this is a fool's dream.” Petroleumnews.com

We are living in the last days of cheap resources and cheap commodities. Gold Letter, Inc. reviews undervalued gold stocks poised to rise in this time of increasing demand.

Click here to order Gold Letter

Don't forget to email.

By David Vaughn
Gold Letter, Inc.
David4054@charter.net

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2008, Gold Letter Inc.

David Vaughn Archive

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