Guest Post: Oil Juggernaut Unleashed

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Submitted by Giordano Bruno of Neithercorp Press

Oil Juggernaut Unleashed

The prevalence of crude is undeniable. You might dabble in
green-think cultism or you might drive an obnoxious monolith of a Hummer
(what I like to call an “overcompensation-mobile”), but neither
philosophy of consumption dares to contradict that this world runs on
oil. Petroleum is used in the manufacture or shipping of almost every
industrial product on the planet, and even many agricultural goods.
Therefore, it behooves the public to seriously consider the
ramifications of oil price and its underlying effect on the entirety of
our economy. Even minor increases holding over an extended period of
time cause economic reverberations that can be felt for years
afterwards. Financial and social adjustments to commodity inflation can
sometimes take decades if the event is historically unprecedented.
Petroleum is a foundation ingredient, it is energy itself; the higher
its cost, the greater the cost of every other product we use, and the
worse off our financial structure is. Period. There is no scenario yet
experienced by any nation in which oil inflation actually benefited the
masses or the overall economy, even in countries that sell oil!

Americans have had a small taste of the tensions involved in an oil
crisis, during the 1979-1980 Iranian snafu, and the massive gas spike of
2008, but these events are nothing compared to the steamrolling
inflation we are soon to see at the pump in the next couple of years.
Let’s examine why…

OPEC Ready To Let Oil Run Wild

At the writing of this article, oil stands at around $91 a barrel,
still below our prediction during the summer of $100 by the end of 2010,
but already a 30% increase over the $70-$75 average we enjoyed in the
middle of the year. Anyone who believes that prices will even out or
fall over the course of 2011 should take note of the heavy press
coverage on the statements from OPEC representatives over the past
couple months. The Middle East has made it quite clear this winter that
$100 a barrel is not just possible, it is a certainty:

http://www.bloomberg.com/news/2010-12-24/oil-consumers-wary-as-some-opec-members-target-100-before-cairo-meeting.html

http://www.reuters.com/article/idUSTRE6BN16A20101225

The illusion underlying the OPEC statements, however, is that the
current price rise is completely under their control. This is not the
case. In fact, the nearly $150 a barrel plateau we witnessed in July
2008 will seem like a quaint memory not long from now, primarily because
the factors involved in today’s petrol valuation are much more systemic
and violent; rooted in a snowballing devaluation of Western currencies,
instead of the traditional influences of supply, demand, or even
speculation.

The recent comments of Kuwait’s oil minister that “the global economy
can withstand $100 oil” are, of course, also disingenuous on a couple
levels. First, the global economy is in dire straights and riding the
wave of a convoluted “recovery” built on fiat and fantasy. $100 oil
will only bring the illusion crashing down as the public realizes the
true effects of long term inflation in prices, and the sales of goods
begin to falter even further than they already have. Second, oil will
NOT stay at $100 for very long, so the suggestion that we can
“withstand” such a price is rather irrelevant. Essentially, OPEC is
losing its ability to reign in or stabilize gas at a reasonable cost due
to the crumbling dollar, and so, they have decided to raise rates to
offset dollar devaluation while attempting to change the definition of
what “reasonable cost” is. They admitted as much back in October:

http://www.bloomberg.com/news/2010-10-15/opec-members-seek-100-a-barrel-oil-as-sliding-dollar-cuts-real-revenue.html

The key here is the dollar and its inevitable demise, which the
establishment is trying desperately to hide until the last possible
moment. Over the next year we are likely to be buried in a deluge of
excuses, half-truths, and lies, all meant to divert attention away from
the word “inflation” as the masses begin to question just what the hell
is going on.

The Real Reason You Were Robbed At The Pump

Many factors can determine the ascent of gas prices, and this is
where confusion arises in today’s market, and propaganda begins to take
root. In 2008, the historic march of oil costs was blamed primarily on
“speculators”, commodity investors who buy up petroleum with no
intention of actually using it, thereby creating a false sense of
scarcity in the market and driving up prices artificially. This was,
for the most part, what really happened.

Another cause of oil increases is the natural reduction of global
supply in the face of rising demand. An American economy running on all
cylinders would necessitate greater supply and a higher price if that
supply is insufficient.

Essentially both triggers are dependent on the fact of scarcity,
engineered or legitimate, in order to cause price spikes. Neither
trigger is applicable in today’s market, where currency weakness is the
central determinant, yet these are the arguments we are hearing and will
hear more of as we are fleeced at the pump through dollar devaluation.
Below are a few MSM articles which promote the supply/demand tall-tale,
including announcements by the IEA (International Energy Agency)
claiming that economic rebound is the culprit:

http://community.nasdaq.com/News/2010-10/oil-rising-as-iea-raises-global-energy-demand-outlook-gold-up-as-dollar-falls.aspx?storyid=40248

http://www.latimes.com/business/nationworld/wire/sns-ap-us-oil-prices,0,6876017.story

http://in.reuters.com/article/idINN1919750020101119

The “recovery” argument in terms of oil demand is obviously laughable
to those of us in the Liberty Movement and alternative economic
research, but to those who base their entire view of our financial
health on the meanderings of the Dow, recovery certainly seems
plausible.

The truth is that the stock market is the LEAST reliable indicator of
economic strength, especially during major fiscal downturns. The Great
Depression was blatant proof of this, but the smoke-and-mirrors magic
show has been elevated to a new level today by the introduction of
quantitative easing measures by the Federal Reserve. Most intelligent
financial analysts have been crying foul for a couple years now over
these monopoly money injections, and have pointed out that a substantial
portion of the funds are being pumped into stocks in order to create a
zombie market; a kind of “Night of the Living Dow”, a market that has
diminished real investment and relies almost solely on constant
formaldehyde-like fiat transfusions from the Fed and the government.
In fact, Charles Biderman of the investment research firm ‘TrimTabs’
recently announced on CNBC (of all places) that after two years of
investigations into capital inflows into stock markets, his conclusion
was that retail investors have quit stocks, and the only thing holding
up the Dow today is the Federal Reserve itself:

http://www.zerohedge.com/article/after-nearly-two-years-searching-trimtabs-still-cant-find-who-doing-all-buying

This shows that the stock market indexes cannot be trusted to glean
proper information about recovery (or a lack thereof), but what about
other indicators? The Consumer Metrics Growth Index, produced by the
Consumer Metrics Institute, is a proven leading indicator of GDP and of
market movements. Its accuracy is owed to its close tracking of
consumer spending, not just in retail stores, but also web sales.
Consumer spending makes up about 70% of the U.S. economy, and is thus a
much more reliable litmus test for overall financial health than
manufacturing data, which is what the government has been using to gage
current growth and future trends since 1937 (back when manufacturing
actually counted for something in this country). This means that the
Consumer Metrics method is far more up to date with the functions of the
modern American economy. According to the CMI index, the U.S. has been
on a negative growth curve since the end of 2009 which is equal in
severity to the credit collapse of 2008, but much longer and more
pronounced:

As you can see in the chart above, whatever recovery we thought we
had in progress during 2009 ended quite abruptly, a temporary jump in
economic activity likely inspired by the printing press free-for-all
initiated by the banker bailouts. How many trillions were pulled out of
thin air and dumped into corporate banks and stocks just to conjure
than one short lived moment of false hope? We still haven’t received
total disclosure from the Fed on this, nor will we until a full audit is
initiated.

Remember housing values? That vital gauge of U.S. economic health
that mainstream media pundits have been calling a bottom on every month
for the past two years? Well, prices still haven’t bottomed yet, and
now they are expected to decline continuously through 2011:

http://aim.search.aol.com/aol/search?s_it=nscpsearch&q=Housing+prices+fall

What about durable goods? That market should be hopping if a rebound
is in progress, right? Nope. Durable goods are experiencing a
substantial decline, similar to that which occurred during the plunge of
late 2008 and early 2009:

http://www.bloomberg.com/news/2010-11-24/orders-for-u-s-durable-goods-unexpectedly-drop-in-sign-of-company-caution.html

So, to get to the point (as if it is not painfully obvious); there is
no recovery! I don’t care how often CNBC, MSNBC, FOX, or CNN, pull
skewed data and automaton analysts from their ghastly dungeon of
disinformation, the fundamental dysfunctions of the American economy
remain unchanged. Therefore, it is outrageous to insinuate that a
“recovery” is to blame for rising oil prices.

The next natural step in the rebound contention is to suggest that it
is actually a heightened demand in the burgeoning economies of
developing nations like China that is driving crude values to the max.
That would be a clever redirection IF one could show that Chinese
economic policy was having a meaningful effect on crude markets. In
reality, the latest Chinese policy changes (which effect the consumption
and demand of the entire country) have had little sway over most
commodities, including oil.

A perfect example is the recent surprise Christmas announcement by
China that their central bank would be raising interest rates yet again
in a vain attempt to combat price inflation. Rate increases usually
signal to global investors that capital flows will tighten, and less
money will be available in the system, meaning demand will fall and so
will prices. Mainstream pundits for the most part called for a negative
effect on commodities, especially oil. No such effect occurred. In
fact, gold has spiked in value and oil has held strong at $91 a barrel.
If Chinese demand was the primary cause of oil inflation, then such an
announcement should have made some kind of visible impression on crude,
but nothing came of it…

Oil consumption in the U.S. imploded in 2008, 2009, and 2010:

http://politicalcalculations.blogspot.com/2010/06/us-per-capita-oil-consumption-plummets.html

Oil consumption around the world suffered a severe decline in the third quarter of this year:

http://blogs.worldbank.org/prospects/category/tags/world-oil-demand

OPEC has stated that there is no supply shortage and that wells will
run at current capacity. The data seems to support their claim. There
is no scarcity of oil, and demand has only fallen over the past three
years. So, what is causing crude values to rocket towards $100 a
barrel?

There Will Be Blood

Since oil is widely traded in dollars, it is perhaps the commodity
most sensitive to dollar inflation. If supply and demand (real or
imagined) are not the acting players in the current oil climb, then we
are left with only one other option; currency devaluation. As we have
covered in past articles, commodities across the board are tearing
towards historic highs, while global demand for goods continues to fall.
Oil is no exception. Establishment economists in the U.S. and in most
of Europe have avoided the dollar collapse issue like Lyme disease, but
other nations around the world will not. OPEC has been expressing
concerns over dollar weakness and openly suggesting dropping the dollar
peg since 2007:

http://www.cbc.ca/world/story/2007/11/18/opec.html

http://www.gata.org/node/5984

http://www.ameinfo.com/138821.html

In 2008, the U.S. government was fully aware of discussions by Arab
nations to depeg from the dollar and move to a basket of currencies
(think SDR’s), and even “greenlit” such decisions by suggesting we “did
not necessarily need Gulf support for our currency”:

http://www.arabianbusiness.com/ditching-dollar-peg-boon-for-region-49383.html

In an investment conference in Saudi Arabia in 2008, Alan Greenspan
himself suggested that Gulf States would be better off dropping the
dollar:

http://english.aljazeera.net/business/2008/02/200852514494345842.html

In 2009, writer for The Independent, Robert Fisk, reported that he
had received insider information that OPEC nations along with China,
Russia, Japan, and France, were engaged in rather clandestine meetings
in an effort to drop the dollar for international oil trades:

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Little credence was paid to this report by most of the MSM, but today
China and Russia have already dropped the dollar for all bilateral
trade. How long would it take to position a country to decouple from
the dollar, from planning phase to implementation? Two to three years
perhaps? With the Federal Reserve’s QE2 in full swing, I believe OPEC
nations will soon follow. The dollar peg would otherwise ravage export
dependent countries, especially oil producers.

Extreme oil prices pummel more than just our wallets; they also
strike our cultural psyche. Those people who found a way to ignore the
signs of economic collapse until now will discover that they cannot
avoid the icy reality of the gas pump. When those digital dials spin
past the $5 mark before pouring out even one gallon of unleaded, I
suspect people will be generally pissed. This is why the establishment
media is oozing with oil disinformation and demand rhetoric now. It is
an attempt to “vaccinate” the masses against inflation in the future; to
redirect their anger towards a false cause and effect scenario. It has
long been my concern that the speculation induced gas spike of 2008
was, in fact, a deliberately engineered event; a staged price vault
meant to condition Americans to passively tolerate the very real dollar
disintegration and hyperinflation which would eventually occur later
down the road. When crude prices race towards $150 a barrel once again,
does anyone really doubt that the MSM will bring up “speculators” as
the villain? And, more importantly, does anyone doubt that the rest of
the world will blame the actual trigger; the fading Greenback?