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Oil Up—or Oil Down?

01 Oct

English: Pumpjack located south of Midland, TX

Pumpjack located south of Midland, TX (Photo credit: Wikipedia)

Last year’s “Arab Spring” toppled four Middle East governments and threatened thirteen more.

That regional uprising was partially inspired by the rising costs and falling supplies of food.

Modern agriculture has been described as the process of turning crude oil into food.  The relationship between crude and food is seen in the petroleum-basis for fertilizer and for the gas and diesel fuels that power tractors in the field and trucks hauling produce to market.

Thus, the global price of crude oil will largely determine the global supply and price of food.  Therefore, the price of crude will determine how many nations are destabilized, how many governments are overturned, how many people riot before they starve to death.

• The price of crude oil has been anything but stable this year. In March it was, $117/barrel; in June, $90; back up to $105 in August; and currently, $89.

So where’s the price of oil headed?  Up or down?

The answer’s important since lower crude oil prices should reduce food and energy prices and contribute to global stability.

This year, the price of crude becomes doubly important since the US is suffering the worst drought in more than 50 years.  Because the US exports more food than anyone else, the American drought threatens the world’s food supply.  If America can’t export enough food, the world can expect another year of political instability similar to the Arab Spring.

The global food shortage is aggravated by the fact that wheat crops in Russia, Ukraine and Kazakhstan have been devastated by drought.   Australia and India have also been adversely affected.

Global food production is declining; global food demand is rising.  Rising food prices will rise and falling food supplies may precipitate political upheavals.

Given the critical relationship of petroleum to modern agriculture, the price of crude oil will help determine whether the world erupts into chaos, or remains fairly stable.

So is the price of crude more likely to rise or fall over the next year?

 

•  Before I make my prediction, let’s look at some recent history:

 

In Arab Spring, Obama Finds a Sharp Test. . . . Mr. Obama, on Feb. 1, 2011, told [Egyptian president] Mubarak that [he] had to step down.  Minutes later, a grim Mr. Obama appeared before hastily summoned cameras.  The end of Mr. Mubarak’s 30-year rule, Mr. Obama said, ‘must begin now.’  With those words, Mr. Obama upended three decades of American relations with its most stalwart ally in the Arab world, putting the weight of the United States squarely on the side of the Arab street.”

“It was a risky move by the American president, flying in the face of advice from elders on his staff at the State Department and at the Pentagon, who had spent decades nursing the autocratic—but staunchly pro-American—Egyptian government.

“Nineteen months later . . . anti-American protests broke out in Egypt and Libya [and] led to the deaths of four Americans, including the United States ambassador to Libya.

“Mr. Obama had learned hard lessons over almost two years of political turmoil in the Arab world: bold words and support for democratic aspirations are not enough to engender good will in this region.” —The New York Times

 

Nineteen months after President Obama helped topple Egypt’s former President Mubarak, Egypt’s new President, Mohamed Morsi, visited the US and said,

 

“Washington is asking Egypt to honor its treaty with Israel, [but] Washington should also live up to its own Camp David commitment to Palestinian self-rule.  The United States must respect the Arab world’s history and culture, even when that conflicts with Western values. . . . The United States should not expect Egypt to live by its rules. . . . If you want to judge the performance of the Egyptian people by the standards of German or Chinese or American culture, then there is no room for judgment.  When the Egyptians decide something, probably it is not appropriate for the U.S.  When the Americans decide something, this, of course, is not appropriate for Egypt.”—The New York Times

Translation?  Say, “bye-bye” to Egyptian support of US policies in the Middle East—including Egypt’s current treaty with Israel.

Say “Hello” to unprecedented Middle East turmoil.

And if the Middle East erupts into another Arab Spring, say “Hello” to higher petroleum prices, higher food prices, food shortages, food riots, and more political upheaval in the Middle East—which will fuel even higher petroleum prices, more food shortages, and more political instability.  If the Middle East can’t be calmed, the spiral of higher crude oil prices, less food and more political stability will continue until the population of the Middle East is dramatically reduced.

 

 “U.S. Is Preparing for a Long Siege of Arab Unrest.  The White House is girding itself for an extended period of turmoil that will test the security of American diplomatic missions and President Obama’s ability to shape the forces of change in the Middle East.”—The New York Times

 

And here’s a beauty from the UK Telegraph:

 

“An armada of US and British naval power is massing in the Persian Gulf in the belief that Israel is considering a pre-emptive strike against Iran’s suspected nuclear weapons programme.  Cruisers, aircraft carriers and minesweepers from 25 nations are converging on the strategically important Strait of Hormuz in an unprecedented show of force as Israel and Iran move towards the brink of war.”

 

Warships from 25 nations in one small geographic area?  That’s never happened before.  That concentration of power in the Middle East is reminiscent of Revelation.

 

“Western leaders are convinced that Iran will retaliate to any attack by attempting to mine or blockade the shipping lane through which passes around 18 million barrels of oil every day, approximately 35 per cent of the world’s oil traded by sea.  A blockade would have a catastrophic effect on the fragile economies of Britain, Europe the United States and Japan, all of which rely heavily on oil and gas supplies from the Gulf.”  UK Telegraph

•  “With Obama policy crumbling, White House blames movie for Mideast unrest.  With anti-American demonstrations exploding across the Muslim world, the White House insists that the deadly attack on U.S. diplomats in Libya and violent protests targeting U.S. facilities in Egypt and several other countries are entirely the result of an anti-Islamic video on YouTube.

“This is a fairly volatile situation and it is in response not to United States policy, not to the administration, not to the American people,” White House spokesman Jay Carney said Friday.  “It is in response to a video, a film that we have judged to be reprehensible and disgusting.  That in no way justifies any violent reaction to it, but this is not a case of protests directed at the United States or at U.S. policy.  This is in response to a video that is offensive to Muslims.”—The Washington Examiner

 

M’thinks the White House doth protest too much.

The truth behind the recent Middle East attacks on the US is probably closer to descriptions seen in several German newspapers:

 

•  “The deeply held American belief that all you have to do is liberate people from serfdom and dictatorship, and then democracy and a market economy will develop more or less on their own, burned to ash in the trial by fire of Iraq.  A fact that academics and historically-informed diplomats have always known can now be observed throughout the Arab world: Deeply ingrained cultural attitudes do not change simply because one political regime replaces another.  In the long process of building a democratic society, it is not possible to simply skip stages.”—Allgemeine Zeitung

 

•  “President Barack Obama’s Middle East policy is in ruins. Like no president before him, he tried to win over the Arab world. After some initial hesitation, he came out clearly on the side of the democratic revolutions. . . . In this context, he has snubbed old close allies such as Israel, Saudi Arabia and the Egyptian military. . . . Anti-Americanism in the Arab world has even increased to levels greater than in the Bush era.  It’s a bitter outcome for Obama.  One thing is clear: If jihadists believe they can attack American installations and kill an ambassador on the anniversary of Sept. 11, then America’s deterrent power has declined considerably.”—Die Welt

 

•  “Three years after Obama’s speech in Cairo, which was supposed to initiate a new beginning in the Middle East, the United States now has even less support in the region than before. . . . It is the consequences of an American foreign policy that for decades favored power over democracy, and a hard line over human rights—and which will suffer from a credibility problem for a long time for precisely those reasons.”—Handelsblatt

So long as the US government’s credit was unlimited, the “petro-dollar” was the “world reserve currency,” and the Federal Reserve could “spin money out of thin air,” our government could buy or bribe every dictator in the world.  Our status as the world’s only super-power status flowed from our “super-currency”.

But as the US government’s credit rating falls, as the fiat dollar sheds its status as “world reserve currency,” and our Fed’s ability to “spin money” is compromised by rising inflation and dollar devaluation . . . our ability to buy or bribe dictators must decline.

In the end, our government is too arrogant and/or corrupt to inspire most people’s support based on its ideals or integrity.  We’ve traded our status of “Land of the Free” for “Land of the World Reserve Currency”.  Our government was thereby able to buy the support of foreign dictators and domestic welfare and subsidy recipients with “mo’ money, mo’ money, mo’ money.”

But when the money stops flowing from Uncle Sugar, the support of  the world and the American people for our national government will also stop.

In the Middle East, a region of Balkan-like instability and conflict, without a strong fiat dollar, there’s no longer a “strong hand” to support or even command stability and order.  It’s going to be difficult, perhaps impossible, to contain Middle East tensions.

The prospect of one or more Middle East wars—not just political revolutions—grows daily.  I won’t be surprised to see Israel and its adversaries “nuke it out”.

 

  “Iran:  Let’s Price Crude at $150 per Barrel”–Reuters

Iran’s oil minister was recently quoted as saying crude oil should be at least $150 per barrel and that oil prices weren’t high enough to threaten the world economy.  I don’t know if that oil minister is doing drugs or standup comedy, but pricing crude at $150 won’t only push the global economy deeper into depression, it will precipitate food riots.  The world economy and the impoverished people of the Middle East cannot survive $150 crude.

Unless The Powers That Be want a global depression and want Middle East madness, they won’t allow the price of crude oil to rise significantly.

In fact, those Powers should want the price of crude to fall.

Even if they don’t, there are market forces at work that will cause the price of crude to fall dramatically.

 

•  James Beck is the lead analyst of the Weekly Petroleum Supply Team for the Energy Information Administration, Office of Petroleum and Biofuels Statistics.  He recently wrote:

 

“The data support the general point that total petroleum product demand is at 1997/98 levels. . . .  This 15 years of demand destruction cannot be explained fully by increased efficiency or increased use of biofuels and renewables (these have, at most, a marginal effect). This is truly an indication of the real and continuing trouble in our economy, high unemployment and underemployment, loss of manufacturing, and reduction of shipping.

Demand for gasoline continues to be below 2002 levels

“Distillate demand for April – June, it is down nearly 4.5% from last year . . . at its lowest level since 2002. Since diesel demand is a very good proxy for the health of the economy (all shipping uses diesel–trucking, rail, barge, etc.), this weakening from last year continues to be source of concern for the economy.

Demand for jet fuel has also fallen dramatically from 2007/08 (it had also fallen dramatically after the 9/11 attacks, never fully recovering to the levels seen from 1999 – 2001). KJet demand continues to be at levels we have not seen since 1994/95.

“These numbers do not tell me that we are in a recovery.”

 

OK, if the global demand for crude oil has fallen to levels seen 15 years ago, I agree that the numbers don’t suggest we’re in a “recovery”.  Instead, those numbers confirm what you and I already know:  we’re at least in a recession and probably a global depression and the global economy is starting to crater.  That’s not news.

However, according to Inflationdata.com, the price/barrel of crude ranged between $12 and $27 in A.D. 1997-98, and averaged about twenty bucks a barrel.

So far, this year, the price of crude oil has averaged about $92 per barrel.

So, if the current demand for crude oil is equal to the demand last seen in A.D. 1997-1998 (when prices averaged about $20/barrel), how do we justify today’s price of $89?

I know that there are factors other than demand (like supply and inflation) that affect the price of crude oil.  Nevertheless, when the levels of global demand for crude oil in A.D. 2012 are similar to the levels seen in A.D. 1997, shouldn’t the prices also be similar?

Instead, we see the current price of crude is four times higher.   Given the fall in demand, I don’t believe the current price can be sustained.

I’m not suggesting that the price of crude oil will soon drop to $20/barrel.  But I am suggesting that the free market force of drastically-diminished demand will drive the price considerably lower than it is right now.

 

•  The New World Order is finally about “order”.  I know that they seek “ordo ab chao,” but there are some levels of chaos that are too chaotic to foster much order.  The Middle East is crucial to the global supply of crude oil and to the maintenance of the global economy.  But the Middle East is also so explosively unstable.  I doubt that the “Powerz” will dare raise the price of crude, food and energy and risk further global destabilization.

Thus, for political reasons, the price of crude should fall.

For free market reasons (demand reduced to A.D. 1997 levels), the price of crude should fall.

My prediction?  We’ll see $70 crude oil long before we see $150 crude oil.

 

•  But if I’m mistaken and the price of crude rises to, say, $120, it will signal that the “Powerz” want the Middle East to explode.  In that case, it will be wise to flee the Middle East.

It may even be wise to flee the Northern Hemisphere.

 
 

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7 responses to “Oil Up—or Oil Down?

  1. Don

    October 1, 2012 at 6:06 PM

    Alfred,
    You say in pertinent part: “It may even be wise to flee the Northern Hemisphere.”

    I say: Just stop the world & let me off. I’m tired of going round & round.

    We have “Black Gold & Blue Gold.” If you or .& any others are not familiar with The “Great Lakes Conspiracy Theory,” Jesse Ventura, comments by Alex Jones, watch it.

     
  2. Howard R Music

    October 1, 2012 at 8:20 PM

    It is possible that oil could come down and that world leaders will try to avert food shortages. The problem is, how many of these leaders are actually sane?

     
  3. applescence

    October 1, 2012 at 11:43 PM

    I was thinking of a trip to tahiti anyway…..maybe I should make it a little longer trip, eh?

     
    • Donald

      October 3, 2012 at 12:30 AM

      applescence
      Permanent move will be best. Hope there will be no “language problem.” You might be surprised at how many “persons” think as follows:
      I
      F you don’t like the way things are go live in Iraq,etc. Apparently they like the way things are. nI became weary of hearing ANGRY remarks like that.

       
    • Donald

      October 3, 2012 at 12:34 AM

      applescence

      I have no idea how the I (eye) got above the F, or what caused the other error,i.e. nI

       
  4. Stephen

    October 2, 2012 at 9:24 AM

    In a new book to me, THEY OWEN IT ALL (INCLUDING YOU!) By means of Toxic Currency it starts with own the cover “I care not what puppet is placed on the throne of England to rule the Empire, …The man that controls Britain’s money supply supply controls the British Empire, And I control the money supply.” (- Baron Nathen Mayer Rothschild, of the Rothschild interational banking cartel) This is the same claim as the 52 pg doc the MATRIX, by a removed judge that I ass sume most in this war as!!!

     
    • Don

      October 4, 2012 at 6:58 AM

      Stephen,
      RIGHT !! He who has the gold makes the rules. No ifs,ands,or butts

       

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