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A Funny Thing Happened To Oil Prices When Nixon Killed The Gold Standard
For the past 150 years, crude oil prices have varied between around $10 per barrel and around $120 per barrel. For many decades, oil prices were relatively "stable" but a funny thing happened in the early 70s and everything changed - whether coincidental or causative the linkages between the oil crisis and Nixon's Gold-Standard-busting of Bretton Woods are clear in the chart below. Goldman expects continued high oil price volatility with risks skewed to the downside as the market searches for a new equilibrium... and a period of macroeconomic adjustment to structurally lower oil prices. Is oil adjusting to a new 'gold-standard-esque' normal?
"Stabilitee"
As Goldman noted back in July...
The security situation in the Middle East remains highly unstable. The Islamic State (IS) has taken control of swaths of Iraq and Syria, employing brutal tactics throughout its advance. Shiite militias, the Kurdish peshmerga, and Iraqi forces have struggled in recent months to contain the insurgency. A US-led coalition has conducted airstrikes in the region since August. In Iraq, Haider al-Abadi has replaced Nouri al-Maliki as prime minister after the latter resigned in August amid political gridlock. Elsewhere in the region, the deadline to reach an agreement on the future of Iran’s nuclear program was extended until July 1, after Iran and the five permanent members of the UN Security Council + Germany failed to clinch a deal before the late November deadline. A seven-week war between Israel and Hamas militants ended on August 26 with an Egyptian-brokered ceasefire on August 26, but tensions continue to fester.
Despite the unstable situation in the Middle East (as well as in Russia), oil prices have plummeted by +40% since we published. A lack of oil supply disruptions in Iraq and Russia as well as the return of Libyan output, which relaxed near-term supply concerns, likely triggered the initial sell-off. However, major underlying drivers ultimately set the magnitude of the price decline – namely, continued strong non-OPEC production growth, weak demand growth, as well as a critical shift in the OPEC reaction function in favor of maintaining market share. Indeed, the cartel’s decision on November 27 to hold output steady signaled a major step away from its long-standing strategy of supporting prices with production cuts. Exacerbating the recent sharp price declines have been falling oil production costs given moves in other commodity prices, currencies and oil service costs, which means that oil producers can spend less to get the same or potentially even more in terms of production.
In terms of Iraqi production, as of November, Iraq was producing 3,380 kb/d, compared with a peak of 3,600 kb/d in February. At 2,810 kb/d, overall pipeline exports (2,510 kb/d from the South combined with 300 kb/d from the semi-autonomous Kurdistan region) were comparable to early 2014 levels (2,800 kb/d). Starting January 1, under a long-awaited revenue sharing agreement between Baghdad and Kurdistan, Kurdistan and the disputed province of Kirkuk will contribute 250 kb/d and 300 kb/d of their production, respectively, to the Iraqi national oil company’s exports. In return, Baghdad will release Kurdistan’s 17%share of national revenue. The Kurds will retain the right to exports above the 250 kb/d sold to Baghdad, and additional private pipeline capacity coming online makes it likely that Kurdish exports will increase over the next few months. In the meantime, independent exports from Kurdistan (of over 380 kb/d) have continued via private pipeline and by truck.
And what to look for in 2015:
Continued high oil price volatility with risks skewed to the downside as the market searches for a new equilibrium. Sharp declines in oil production costs, on top of a strong consensus view that the recent extreme oil price weakness will prove temporary (which is motivating oil producers to position for a rebound in price rather than to cut production), suggests that oil prices could fall lower and for longer. Given the expected future supply glut in oil, we believe that the market is actively looking for the new equilibrium price that will take out the excess marginal production. As the industry takes the “fat” out of the system that was built up over the past decade, the new equilibrium price is dropping sharply; where it settles is unknown right now, but we can comfortably say it is likely below our earlier estimates (Brent in the $80-85/bbl range). New cost data early next year should help narrow down what this equilibrium “new normal” might be.
A period of macroeconomic adjustment to structurally lower oil prices. EM oil importers such as India and Turkey should benefit the most, while EM exporters will face the greatest challenges, particularly in those countries with higher breakeven oil prices, such as Algeria, Iraq, and Iran.
Continued instability in the Middle East, as the IS insurgency and Syrian civil war – among other sources of conflict – remain far from being resolved. The severe extent of the oil sell-off also threatens to heighten political instability in the region (as well as in Russia and other oil producers).
* * *
Source: Goldman Sachs
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Oiled up and ready for the horny public; Kim Kardashian!
Oil keeps the USA in the middle east fighting endless wars and providing cover and safety for Israel.
Interesting. JFK, LBJ left out. JFK new the petrodollar was a bad deal. Nixon simply gave birth to the bastard...
In between JFK and LBJ three things happened :
1° France started singing "exorbitant privilege" circa 1965; as the £ got rocked under Harlod Wilson and France's economy was booming and didn't want to suffer from the mis-working of the London gold club.
2° By then LBJ was deep into Great Society and Nam spend; as USA's oil balance went from exports to imports (peak US oil) and that scared the shits out of the then FED and incoming Nixon.
3° Whence BW revoke and Friedman's floating rate mantra "our money your..." and subsequent chain reaction in 1971 when Q-daffy was the first to break OPEC discipline by asking for 3$/bbl (instead of official 1.3 $), It started the roll.
Of course Dear Henry & Nixon latched on to the petrodollar in 1973 war crisis and City became the nexus of petro recycling based on debt funding (all on Arab credit lines). Nothing has changed except its now China and Japan the other creditors.
JFK did not want the situation to get out of hand after Bay of Pigs. He wanted to break the MIC/CIA into a 1000 pieces. He knew that the $ was fragile, but he wanted Apollo to Moon to be the leading edge of US not Nam. He paid for it.
hmmmmmmmmmmmmmmm..... couldn't find any of that in the Warren Commission reports.
I would say try the Fed statements but they don't make any sense either.
Yes. And for that to happen, it must keep & preserve the Petrodollar by any and all means, fight any competitor or foe: big or small, near or far, few or many.
Anybody see another problem here besides high cost Oil & Gold after the Saudi's Cut off the Oil & Nixon Shock?
-
- 108 Million People are on Welfare of some kind.
- 319 Million = Total Population (FRED)
- So 33.9% of US Citizens are on Welfare
- Yet each US President & Each Congress say everything is okay...
- And use Continuing Resolutions for Exponential Federal Spending
- And we just went over $18 Trillion Public debt, while planning more war Spending in Ukraine, Middle East, Africa, and a defense shield in Asia
- Plus we pay for more than 4 million people each year in Prison & Probation, but only 53.9 Million Males 25-55 years of Age are working
- Matter of fact it is so good we do $700 B Bailout, 4 Years of QE, 6 Years of NIRP/ZIRP, no investigations or Audits of Big Banks & FED, and we are going to hold Individual Bank Accounts Liable for TBTF derivatives or Moral Hazard
When I was a lad (that's a long time ago, 50+ years) a single silver quarter (25 cents face), then coin of the realm worth about 22.5 cents (90% silver, melt value) bought a gallon of gasoline. Today with silver at approximately $16/oz and thus a quarter is $4 and at 90% melt value, is thus worth $3.60. Which BTW is just about where gasoline (with Ethanol so actually a deterioration in energy power) was right before the latest geopolitical shenanigans of the Saudi's raiding the world's marginal oil production capabilities
Just sayin'.
The value of the real sound money held it's purchasing power.
The fact that the paper value went from 25 cents to $3.60 is testimony to the failure of managed fiat central bank policies designed to fund extravagant governmental over reach.
Also has rather significant implications for the expensive oil end of cheap energy meme but another time for another discussion.
And that's why, probably, generational wealth is the only way to join the system AND provide your sperm cells with a certain future. Besides knowledge.
"Swing producer.". With your currency as soaring in value even though it is the global reserve? That says to me dump the friggin debt pronto. Talk about a " Merry Christmas"....what's just happened this past week is improbable to say the least and I will watching Space X closely and I think so should everyone else.
More than oil prices have collapsed here. Metals, mining, means of production...you name it. With " Target: Moscow." No shit, right? The Navy and Marines better get moving...they're already behind.
Knukles, here's a chart of the oil price from 1950-2014, measured in gold grams per barrel: http://pricedingold.com/crude-oil/
Thanks. We can tell when the Cartel took full power over oil & Gold.
Volatility is the wedge they use to pry open our wallets.
@ knuckles Ah...those were the days :)
A quarter also bought a 5 great donuts, five 1oz Hershey bars, twenty-five "Atomic Fireballs", and a four pack of Charmin :)
Circa 1964 there used to be a local gas station chain in the Chicago area -- Clark's. All they sold were gasoline and cigarettes from a tiny kiosk. No sevice bays, no food, no nuttin'. You pulled in and took you pick - pack of your favorite smokes or a gallon of gas "that'll be 25 cents please"
Continued instability keeps the casino doors open. All a gambler needs is a little bit of hope, and we have a massive marketing and propaganda campaign making damned sure the optimism holds.
The real Story: The Arabs were pissed off at the Americans for supplying arms to Israel in the 1973 war- which Isreal would have surely lost without American aid- so Saudi et al embargoed selling oil to the US and the price of oil went up from $4-5 dollars a barrell to $30.
Henry Kissinger, possibley a war criminal- but a seminal intelligence even compared to his intellectually gifted Tribe brethren -persuaded the Saudi Royal family to only sell oil in American dollars in return for American military protection .Thus setting the table for the King Dollar for two generations
Kissinger was a genius for setting up that system; however, today that entire economic structure-the American dollar as the dominant reserve currency is tottering.
Chicken or egg ?
The Arabs were already looking for more money for their oil at that point anyway.
They wanted value for value.Something they are not getting now.
Israel was just the cream on the icing.
no offence but your version is hogwash.........MSM bullshit
http://www.counterpunch.org/2012/02/22/what-really-happened-in-the-yom-k...
Counterpunch not exactly a scholarly publication.
No offence but their version of the 73 conflict is hogwash.
Exactly.
Date line Moscow. From the land that created "The Elders of Zion" an classic piece of propaganda.
that history has been officially revised. the history you cite no longer happened.
Ja-Yeah. We need a total Investigation & Audit. Probably a Task Force of different skills and disciplines.
Where are the FTC, SEC, FINRA, DOJ, FBI, GOA, CBO, Treasury, Congress, CFTC?? Consumer Financial Protection Bureau.
Famous Chinese Sayings:
- yí cùn gu?ng y?n yí cùn j?n, cùn j?n nán m?i cùn gu?ng y?n - Time is money, and it is difficult for one to use money to get time.
- (zhòng gu? dé gu?, zhòng dòu dé dòu) - As a man sows, so shall he reap. This proverb warns that one receives just returns for one's actions; good for good, and evil for evil.
- (méi y?u gu? ju bù chéng f?ng yuán) - Nothing can be accomplished without norms or standards.
- (b?ng bù yàn zhà) - Nothing is too deceitful in war. (Think DC or TBTF)
- (shí nián shù mù, b?i nián shù rén) - It takes ten years to grow trees but a hundred years to rear people. (Think USA has a long way to go)
- (shì shí shèng yú xióng biàn) - actions speak louder than words. (look at Congress)
Tenor: There's a song that I recall
My mother sang to me.
Spriggs (off): Oh! (a sigh)
Tenor: She sang it as she tucked me in
When I was ninety-three.
(harp plays a rising chord...)
Spriggs: I diddle, I. Who was that bum?
Bluebottle + Spriggs:
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po,
Ying tong ying tong
Ying tong ying tong (bluebottle drops behind)
Ying tong iddle I po
Spriggs: Keep lad up. Keep.
Bluebottle: Keep up lad up.
Both: Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Spriggs: lad
Both: Ying tong ying tong
Ying tong iddle I po (lad)
Iddle I po (lad)
Ying tong ying tong
Ying tong (Spriggs: iddle) (Bluebottle: ying tong)
Ying tong iddle I po
Ying tong ying tong iddle
Bluebottle (spoken):
Ying tong iddle I po!
(short raspberry, Secombe)
Both: Oh!
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
Iddle I po!
(trumpet bit)
Bluebottle:
Ying. Ying tongy tongy.
Ying tong iddle I po.
Ying tong iddle I po.
(Secombe under this: What a lovely lovely boy!)
(or Secombe under this: What a lovely melody devine!)
Ying ying ying tongy tongy.
(Milligan: Get out the rifle, sir.)
(or Milligan: Get off the record.)
Yeeeng.
Ying tong ying tong d'gy-n'o.
Ying tong d'ga.
(Secombe: Get away.)
D'g d'g d'ga.
Ying tong iddle I po.
Seagoon:Hear that crazy rhythm
Driving me insane.
Strike your partner on the bonce (bonk?).
(thump)
Eccles: Ooh. I felt no pain.
(Seagoon screeches)
Seagoon, Bluebottle and Eccles:
Ying tong ying tong
Ying tong ying tong
Ying...
(harp chord rises)
Soprano: Take me back to Vienna....
(Raspberry section, probably Milligan)
Bloodnok: Ohhhhh!
Eccles: Oh!
(harp chord)
Soprano: Take me back to Vienna, where the....
(crash!)
Seagoon, Spriggs and Bluebottle (far off):
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
(mad dash to foreground)
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
(Spriggs: where's he going lad?)
(BB: I don't know)
Ying tong ying tong
Ying tong iddle I po
Seagoon: LOOK OUT!
(cry from Bluebottle)
(mad dash to distance)
(hastily)
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
(dash to foreground)
Ying tong...
(whine of bomb dropping, explosion)
Double speed, but same tempo, Goons:
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
Iddle I po.
Ying tong ying tong
Ying tong ying tong
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
Iddle I po.
One: Ying! Tongy tongy tongy.
Yiddy diddy diddy da daaa. Ying diddy.
Ying tong diddle. Yiddada boo.
(rhythmic thigh slapping, raspberry)
All Ying tong ying tong
Ying tong iddle
Ying tong iddle I po
Ying tong ying tong
Ying tong iddle I po
Iddle I po.
Eccles: Whoooooh!
May Richard M. Nixon burn in hell!
Amen.
http://jfkmurdersolved.com/nixonruby.htm
you mean Kissinger........Nixon was too busy fighting his Watergate demons......Henry and Golda Meir set the whole thing up........see my post/link above...
''In his 1992 biography of Henry Kissinger, Walter Isaacson records that on 6 October 1973, during the 1973 Arab Israeli War, Kissinger urged President Richard Nixon's Chief of Staff General Alexander Haig to keep Nixon in Florida in order to avoid "any hysterical moves" and to "keep any Walter Mitty tendencies under control".[5]''
http://en.wikipedia.org/wiki/Walter_Mitty
dupe
The banks are short oil. Specifically the Federal Reserve Bank. Specifically that one.
The prog enterprise, in its entirety, relies, nay demands, something for nothing. It's no surprise then that their corresponding financial system requires funny money. Oil price stability would be a natural casualty. Nixon was a prog, the pols are all progs. Next article, please.
what happened in the early 70's was just
At the end of the 60's,
1) America's Balance of Payments had started to turn south.
2) the oil industry and the government saw that the prediction M. King Hubbert had made in 1956 that 'peak oil' would arrive in the continental US in the early 70's was a fait accompli.
3) if 1 and 2 were true, then the US would have to import more oil and its negative BOP would increase.
4) if the US's negative BOP increased, then gold would exit the vaults.
5) Therefore it was incumbent upon the President, in light of the expectations of future imports and exports, to prevent the flight of gold from our shores and, voila, the rules were changed.
One simple thing would have changed all that - an energy policy that recognized the pollution and foreign policy costs that accrued to the public's use of oil. If you subsidize something you get moar of it.
Jimmy Carter was actually correct in everything he said on July 15, 1979. But we mocked him and called it his "malaise" speech. And then we drummed him out of office. We have paid for that mistake with our national prosperity.
http://www.pbs.org/wgbh/americanexperience/features/primary-resources/ca...
A la recherche du temps perdu:
A sensible, enlightened energy policy was on America's 'to do' list, but they were too busy napalming Vietnam to really get started.
They had to fall back on a policy of trickery and got Saudi Arabia to convince Egypt and Syria to attack Israel on Yom Kippur, so that the Middle Eastern oil exporting nations could embargo and then raise the price of crude and thereby reduce demand.
As you see the Shah had no problem raising the price for his crude, but could just as easily have NOT raised his price if that's what the US wanted.
But the US wanted a reduction of demand and that's what they got. Six years later the Shah fell and we had the second oil shock.
The Seventies Show
1) American defeat in Vietnam
2) reversal of BOP by imported oil and trade with China
3) resignation of Nixon
4) fall of Shah
5) hostages in Iran
6) genesis of the Reagan juggernaut (and the destruction of the known universe)
Funny you should mention Carter's Malaise speech. I remember it well. It woke me up. I don't agree with your assessment though. To me, the President of the US blamed the problems of the world on the little people for not goose stepping high enough. That told me there was something going on that I was completely unaware of. The Republicans clucking and cooing told me they were in on it too. That was before the internet, so it took me five years to begin to figure things out. It's so much easier today. I do agree it would be a better world if Carter had been re elected. As David Stockman, Reagan's budget director, said in the early 80's, Reaganomics was a Trojan horse, giving us what we have today.
There has to be no doubt as why America left the gold standard under Nixon. It indeed was deliberate.
Oil is findng a temporary bottom but long term it has worse days ahead...
http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...
Gold is also in trouble longer term, but in the short term it will have a few months of resurrection...
http://www.globaldeflationnews.com/gold-elliott-wave-update-for-week-end...