$200 Oil - Who's Going to Pay For It? 37 comments
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In March of 2005, Goldman Sachs kicked off the oil speculation boom by releasing a report that "Oil Could Spike to $105."
At the time oil was around $55 a barrel, already up considerably from $25 a barrel before the Iraq war (the second one) surprisingly caused oil prices to spike.
[Interesting note: The first Iraq war is what made our current President his first millions as he sold his stock the same month his dad invaded Iraq and spiked oil from $18 a barrel in July 1990 to $27 in August. After bankrupting his first company (aptly called Arbusto Energy), in which he was partners with Salem Bin Laden (Osama’s Father) through James Bath (who also worked with BCCI who conducted the largest bank fraud in US history while laundering gun money for George I in the 80s), Junior merged Arbusto with Spectrum 7, became the CEO and bankrupted them. Spectrum 7 was then sold to Harken with the financial help of BCCI’s Kalid bin Mahfouz, who took over for Bin Laden on his death and bought 17% of Harken in exchange for the Bush bail-out which ended up giving him 400,000 shares of Harken stock (Bush was investigated by the SEC but was cleared - how would he know his dad was going to invade Iraq?!?)...]
Anyway, so there was no way our President could have foreseen the impact that invading Iraq (again) would have on the American economy (or his family’s extensive oil holdings) but Goldman Sachs was on top of the situation as they were the largest trader of energy derivatives. Goldman’s 2005 report cited " Thin spare capacity in the energy supply chain, and long response times for bringing on supply additions, as well as robust demand in the United States and in developing heavyweights China and India, despite the recent rapid increase in energy costs."
Now that the mission has been accomplished at $105, Goldman (who has made record income on the massive increase in energy prices and energy trading even while losing their shirts on the other bubble, housing) has now upped the anti and is boosting their low-end range to $80 and says: "$200 a barrel could be a reality in the not-too-distant future in the case of a "major disruption"."
This report, released Monday morning by the same guy who was right about $105 (even though he said that would be a super-spike, not the norm), drove oil to $108 a barrel in Monday’s trading and knocked the markets right off their early morning recovery and sent them back towards the 1/22 lows.
What Goldman doesn’t explain though, is who is going to pay for this $200 a barrel oil? I pointed out to members of my site Monday afternoon that today’s $2 rise in oil prices will cost US consumers $280M next week. At 20M barrels a day of consumption, $200 a barrel oil would be $4Bn a day spent just on oil! That’s about $1Bn a day more than we’re paying now, $365Bn a year or double what Bush is dumping into the economy in order to shut us all up while oil goes over $105 a barrel while the dollar "super spikes" below 73.
That’s right, our own US dollar finished the day today at an all-time low of 72.96, down 40% since Jan 2002 so the joke is on OPEC, who is only getting $60 worth of our 2002 currency for their $100 barrels of oil. Unfortunately, the joke is also on us as that dollar you have in your pocket is worth just 60 cents while the average American is making LESS money than he did in 2002.
Couple stagnant wages with declining home prices, increased property taxes (because local governments actually have to BALANCE their budgets), rising food and other commodity prices and you have to wonder where Goldman, and their investors, think US consumers are going to scare up an extra $1Bn a day to pay for oil. By herding investors into commodities at this level, Goldman is leading sheep to the slaughter as spikes that look like this rarely end well for the latecomers:
Perhaps if oil were the only thing going up in price Goldman could squeeze another $1Bn a day out of US consumers, but let’s keep in mind that the rest of the world has to fork over $3Bn a day as well in order to support $200 a barrel oil. That’s on top of the $4Bn a day we are all paying already - that’s a lot of money. Oil is not, however, the only thing that’s affected as food and other goods rise along with the price of oil.
The CRB index should be at around 308 (220 in 2002 x 140% to adjust for the dollar) but has outpaced the dollar decline by a whopping 33%, a nice toppy little number that’s just begging for a retracement to 370 very soon. While a 40% decline in the dollar may have helped Goldman and Bush achieve their primary goals, it’s hard to see how we are going to manage enough of a decline in our currency to push oil and the CRB up another 100% from here.
A 40% decline in the dollar led to a 33% increase in the CRB and the dollar is at 72 against a global basket of currencies so it will take 3 more 40% declines in the dollar to get us to $200 oil, Following the same path we’ve been on to get to $100 oil, that would be going from 72 to 43 to 26 to 16, giving us a US inflation rate of roughly 450% overall. This is the dream of starry-eyed energy traders who are too bad at math to realize that if they do successfully drive oil prices up to $200 a barrel and double their money, that the money they have will only be worth 1/4 of what it was when they started.
Really people, think about it - we are talking about $8 per gallon gas. We are talking about $160 to fill up your tank and $1,000 a month to heat a home. We’d better start giving people monthly raises now as it’s going to be really hard to know if our employees will be able to afford to drive the car to work with projected increases of .10 per gallon per month for the next 4 years.
The average US driver has a car that gets 20 miles a gallon and drives 15,000 miles a year. That’s 750 gallons a year. $4 a gallon is $3,000 more dollars of what used to be disposable income going up in smoke. Even if we conservatively assume that all the other increases in the CRB translate to "just" another $3,000 in forced spending and we cap utility increases at $500 (super conservative numbers) then we still have the average US wage earner needing $6,500 more in net wages to support $200 oil.
That would be roughly $10,000 pre-tax or roughly a 40% increase in the average person’s salary JUST TO STAY EVEN WITH WHAT THEY ARE SPENDING NOW. So I ask Goldman Sachs, I ask the commodity bulls and I ask our President - who is going to pay for this?
We are talking about the destruction of the very fabric of our society here, not a "rally." The rise of oil is a crisis and needs to be treated as such as it will do more to destroy your way of life than a hundred terrorist attacks could possibly hope to do and it won’t change unless you demand that it change. Our "leaders" set their agendas based on the polls, maybe it’s time we start setting the agenda…
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This article has 37 comments:
At $200 per barrel oil we'll finally adopt conservation, solar power, biomass, wind energy, and hopefully nuclear power, so that we can end our deadly dependence on imported oil.
go solar!
-scott
growthportfolio
You can say bye, bye to drive ups, strip malls, and out of the way vacations.
Why...all the "wise conservatives" who say that Green Energy will "never work" or isn't "cost efficient".
That's who!
As I was walking through the commuter parking lot I noticed all the Crew-cab pickup trucks, full-size vans, minivans, muscle cars, even a Humvee. Fortunately there more econocars than last year. Lately I've been leaving my Landrover in the garage and drove the Cavalier instead.
I still wonder: WHO are the remaining "19%" and why can't we ship them to Iran, where they'll fit in better??
You might be correct. But, here are a couple of counterarguments:
>> but let’s keep in mind that the rest of the world has to fork over $3Bn a day as well in order to support $200 a barrel oil
Measured in dollars. What's the cost to the rest of the world measured in their OWN currencies?
>> This is the dream of starry-eyed energy traders who are too bad at math to realize that if they do successfully drive oil prices up to $200 a barrel and double their money, that the money they have will only be worth 1/4 of what it was when they started.
Not if they're using borrowed money (e.g., from the Fed). If I:
- start with $0,
- borrow $1B,
- ride it up to $2B, and
- pay back my $1B principal (with 10% interest),
then:
- my nominal profit is $1B
Let's say the dollar loses 50% during that time. In real terms, I still net $500M, because:
- My real gross is $1B.
- My real principal repayment is $500M.
Me and the rest of the amateurs probably won't play it right. Nor will many pros. But, like they say about Lotto: "you gotta be in it to win it" and "somebody's gotta win".
Assuming I pay a 50% tax on the inflated gains, then my real return is wiped out! (50% tax on $1B fake gains = $500M.) I only managed to keep my "real wealth" intact, like the Red Queen Race (hat tip to Mish).
Of course, if I'm a successful supply-sider and can talk the public to lower my tax rate, I can still come out ahead. (They, of course, will not.)
Is my savings really worth 40% less..I might not retire.booooooooooooo!...
It's ridiculous to think that our country is going down so quickly. If GB would quick tanking billions/month on wars that we can't win, maybe our country wouldn't be spread so thin. And if the government would TAX foreign made goods (at US owned companies) and NAFTA was repealed, maybe my husband wouldn't have to think about going back to school at 50. (He's been a factory rat for 30 years and is having to rethink his career plans.)
"That’s right, our own US dollar finished the day today at an all-time low of 72.96, down 40% since Jan 2002 so the joke is on OPEC, who is only getting $60 worth of our 2002 currency for their $100 barrels of oil. Unfortunately, the joke is also on us as that dollar you have in your pocket is worth just 60 cents while the average American is making LESS money than he did in 2002."
So really, the question isn't "WHO is going to pay $200...", it's "WHAT is $200 going to be worth...?" OPEC is anything but stupid. They see what is happening to the dollar. It is going to its true value of the paper it's printed on.
Why couldn't we say the same about the other fiat currencies...which is exactly the same thing as asking why couldn't we say the same about all the other currencies presently in use, since ALL are non-backed fiat currencies? Well, we could, except that NONE of them have abused the printing press, and abused its position of power...its hegemony...as the premier paper currency like "we" have. "We" b/c you and I haven't had much say in it. We can't vote the Fed in or out of power...our Congress did that almost 100 years ago. But unfortunately Americans went along with it by not voting out of office those who DID vote to give the one power the Founding Fathers told us NEVER to give away...the power to control the money of the country. The Fed has almost singlehandedly destroyed our currency...it's already destroyed...it's just going to take a little more time to hit its lows before we move on to the next system...whether it's the Amero, or some type of gold/silver backed currency.
Don't worry about the price of oil...worry about where your wealth is. If it's wrapped up in dollar-denominated investments...you're toast and a fool. Make sure you have some REAL money...and that is and always has been gold and silver...no matter HOW much the Fed and the rest of the anti-gold cartel has tried (and mainly succeeded) in brainwashing the American public to believe it's just some non-edible, non-usable, "barbarous relic" only good for jewelry.
jt
so we can pay $1.20(or under $2.00) for gasoline like china or brazil or chavezland.
Please answer the following questions:
- How many barrels are in ANWR?
- Since oil is fungible and the market is global, how many barrels does the world use a year?
Mind you, I'm entirely in favor of drilling * off the coasts of California and North Carolina and everywhere else (provided we tax hydrocarbon use to encourage transition to alternative energy). But, ANWR is a drop in the bucket for our energy needs. 9 billion people on the planet by 2050 need long-term solutions. Those people are depending on the choices you and I make.
Also, think of ANWR and our coasts as our "super" SPR. A foreigner once said to me "America is using all the world's resources and saving its own for itself; it's as clear as the nose on my face". It's clear to me, too. The day will come when your children will thank you for not drilling in ANWR.
(* Does that mean I'm not an environmentalist? No. I want us to eliminate coal and -- like it or not -- we're going to need more oil and gas short-term to cover the deficit. ALSO, "spills" from oil rigs and pipelines are trivial. Big spills come from shipping it in tankers.)
For today's breaching of $110 oil, thank Ben Bernanke and $200 billion in freshly printed money yesterday or blame the $160 billion Deficit Stimulus Act signed a few weeks back, then anticipate, as traders do, that the FOMC will further slash rates and weaken the Dollar even more next week. We are doomed. $1.60/Euro is easily in sight.
Yes, the economy will collapse, roughly a three year process. Yes, totally selfish people whom could care less if other Americans live or die caused this. The Arabs get some blame, but Al Queda and 911 Arabs, not the ones buying our hard assets and barely keeping the economy afloat and continuing to peg oil to the dollar, despite the long-term risks. Yes, the middle class quality of life is collapsing and it will look OK in the next three or four quarters but this is a false illusion from stimilus. February business I have never seen such a drop and I am in a recession-resistant market (no market is truly recession-proof).
OK, that said let me comfort my countrymen! 10% of our population, outnumbered and largely unsupported by the colonies managed to defeat the British, the modern version of America for it's time in a mere 3 1/2 years in the American Revolution. Washington was down to a few thousand men in one little city versus the entire empire in the last year of the war. They STILL WON, even though the population didn't support them until they turned the tide with one mighty, victorius battle. Why? Because this is our land! This is our country! This is our liberty being *ucked with! So, it takes some Patriots of courage that are backed into a corner to turn the tide.
It will be bitter and we're in for more shocks, stuff we hoped we would never, ever have to see in our lifetimes, but you know what? We will prevail, we have the support of the majority (if only by fractions) and our middle class is better educated then any time in our nations history. Oh yeah, while Washington's men barely had ammo, 60 million of us are armed.
If we can't vote them out and radically change the political landscape (doubtful) then Google the French Revolution and see what an educated middle class can do with elite turds selfishly ruining a nation while building palaces.
Help out you're neighbors. Open the door to the old person. Smile, be courageous. Stop listening to socialist PC media that keeps telling us we're are bad, bad-bad Americans! *uck them! We have rovers on Mars. Our scientists are peeking into new dimensions. We have built anti-aging pills being released in a decade to extend life to 140 years.
People after WWII were called the Great Generation. WHY!? Were they better then us? NO! They had their roaring twenties and greedy, arrogant elites whom drove the country in the ground and bad politicians whom were voted in because the partying was great for the American Joe! Sound familiar? They became great because they helped each other survive. It's called human nature and survival of the fittest. When peace and prosperity come in waves, we humans become decadent, selfish and lazy!
The Great Depression took almost a decade to unwind and then immediately afterward, WWII began. Talk about 15 years of hardship! But we will endure, we will win and we will all have our longs days of peace afterwards. We will also be called the Greatest Generation. But some of us will have to adjust to the shock first and then take up battle positions, rank and file baby.
1. The report says that the price of oil could reach $200/bl IF a major disruption occurred. I think the bigger concern is the kind of disruption it would take to make the price of oil double.
2. If this thirst for oil is largely driven by speculation and not actual consumption, those buying the oil and driving the price up are going to sell it at some point in the (near) future. Once they do, the amount they’re selling, plus the future production will increase supply, leading to a drop in price. Granted this drop won't bring the price below say $80 /bl, or maybe even $100 for that matter. But that lessens the probability that oil will reach 200/barrel, at least in the near future. (Ceteris paribus)
So how likely is it that oil WILL reach 200 dollars/barrel?
If my thoughts are wrong, well, that’s just part of the learning process.
Sadam invaded Kuwait in July - August 1990.
Gulf War I started Feb 1991 when Bush invaded Kuwait & Iraq.