There are lots of opinions on where the price
of oil is going. Some think that it’s headed back to $38. Some, like
the expert oil analyst ´Zapata’ George Blake, think it‘s
going much, much higher. Depending on which story you believe, your
likely actions and decisions will be (and should be) vastly different.
Better choose wisely.
I am going to repost the whole article here because it’s packed with
very important information. As always, prices are a function of supply
and demand, with excess money creation lurking underneath, creating a
bias towards higher prices.
London, Apr 3 (Prensa Latina) The oil price could
hit $160 a barrel as soon as next week, says ´Zapata’ George Blake, the
Texan oil analyst quoted by the London-based online newsletter Money
‘Zapata’ George has a habit of making bold calls that often seem to
be proved right. He thinks there’s an imminent supply squeeze ahead,
which will cause the oil price to spike.
But, first, Money Morning dispels a couple of common myths about
oil. Number one, there is a belief that demand for oil will go down in
In the last 58 years, according to Worldwatch estimates (based on
sources such as BP and the International Energy Agency), year-on-year
demand for oil has grown every year, except for two brief periods.
Between 1973 and 1975, amidst a global energy crisis, global demand
decreased annually by a whopping 0.01 percent. And between 1979 and
1984 consumption growth levelled, the biggest annual decrease being in
79-80 – down a devastating 0.04 percent.
Thus, demand for oil will not fall by any significant amount, even if the US goes into recession.
Oil myth number two is that increased production will meet demand.
Money Morning reminds those who affirm that, where are the discoveries that will lead to new production?
The last major oil frontiers were discovered as long ago as the
late 1960s – the North Sea, the North Slopes of Alaska and Western
Since then, there has been some reduction in the number of
discoveries, but, more significantly, a huge reduction in their size.
In the 1960s over 500 fields were discovered; in the 1970s, over 700;
in the 1980s, 856; the 1990s, 510.
But in this decade just 65 oil fields have been discovered.
Of the 65 largest oil producing countries in the world, up to 54
have passed their peak of production and are now in decline, including
the USA in 1970/1, Indonesia in 1997, Australia in 2000, the North Sea
in 2001, and Mexico in 2004.
‘Zapata’ George points out that the extreme cold spell in February
in Alberta in Canada meant that the tar sands couldn’t be mined. One
refinery in Edmonton had no oil to refine, while the larger Strathcona
Refinery was running at significantly reduced rates due to ‘operational
He then mentions Australia, where there are currently gasoline
shortages. BP and Shell have apologized, citing ‘constraints on
imports’, leading to ‘unprecedented level of fuel shortages’. The four
biggest oil refineries in Australia are not operational.
Meanwhile, Chinese oil demand went up by 6.5 percent in February,
and their oil imports have risen by 18.1 percent. In brief, the Chinese
are getting the oil, while Canada and Australia are going short.
Bottom line: Supply is pinched, and
demand for the #1 source of worldwide energy does not ever fall by any
appreciable amount. Meanwhile, the world’s money supply is on an
absolute tear as the global central banks lock arms and pump, pump,
pump to try and sustain the unsustainable.
What’s going on with the US money supply? Ever since the Federal Reserve stopped reporting on M3, the most comprehensive official measure of the US money supply we’re left with is "Money
of Zero Maturity," or "MZM." Think of MZM as the summation of all the
checking, savings, and deposit accounts that are denominated in US
dollars. Check out this chart taken directly from the Federal Reserve website:
I drew the blue line on there for easy
reference. What we see is that except for the September 11th anomaly,
money supply growth is at a 17 year high. And not by just a little bit
either. By a lot.
All I have to say about this chart is ‘wow!’ Even as regular
Americans are entering foreclosure and personal bankruptcy at record
levels, those who are more directly connected to the US money spigot
are gaining wealth at the most astounding levels seen in recent memory.
That’s what this chart means…all that newly created money is going
somewhere, and it sure as heck isn’t ‘trickling down.’
Yesterday I posted about food prices going up 8% in a single three
month span. That data and the chart above are consistent with each
other. Oil prices are again heading towards record territory this
morning. That, too, is consistent. In fact, everything I can find
relating to prices of things we need, as opposed to things we want, is
consistent with the graph above. The only things that are badly out of
step are the Fed’s preferred measure of inflation (the Personal
Consumption expenditure or PCE) and the US government’s preferred
measure (the Consumer Price Index or CPI).
Or, as I like to say, reality and our official story are now so far
apart that our collective story has migrated from farce to tragedy.