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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

The Oil Price- We are Living in the Last Days of Cheap Resources

Commodities / Crude Oil May 29, 2008 - 11:40 AM GMT

By: David_Vaughn


It looks like we may be paying 5 dollars a gallon for gasoline before the end of the summer.

There seems to be a great deal of speculation as to why the oil price is rising. Are the oil companies simply gouging American citizens? Perhaps OPEC is doing the gouging. Or maybe it would help things if the United States allowed for refineries to be built and oil to be drilled here in our own country.

“Gas prices topping $4 a gallon” “Fuel costs expected to keep rising as summer driving gets underway” “Four dollars (a gallon) is a done deal now,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. “We could go significantly above that.” “We're going to see some more significant increases here in light of what we've seen in the last few days,” said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.”“Growing demand for fuel is also helping boost oil prices.” “China's just hungry for diesel,” Ritterbusch said.” MSNBC

I paid 51 dollars and 41 cents to fill my tank this Sunday evening. The ones I really feel sorry for are those who are carrying huge car payments. This is the time at least to have a car that is paid for.

“High oil prices? You ain't seen nothing yet” “If you think $100 per barrel oil is costly, consider $180 per barrel oil. The former is here, while the latter may be in our not-too-distant future, according to two well-known oil industry analysts.” “…but the key question is where oil prices will go from here.”

We have had cheap gas for so long did it not seem inevitable that the price would climb eventually? For whatever the reason?

“Why China Can Withstand $90 a Barrel Oil - And Higher “ “The rest of the world is wincing as crude oil prices surge past $90 a barrel, yet China - the world's second-largest oil consumer - appears set to continue sucking up oil at ever higher prices. What's it got that the rest haven't?” “Experts say the country's not entirely immune but that a timely combination of extremely robust finances, strong political incentive to uphold costly fuel subsidies, and less exposure to world oil price fluctuations than many realize is what's keeping Chinese oil demand seemingly insatiable.” “Chinese consumers, though less energy-efficient than their Western counterparts, are shielded from the impact of surging oil prices which would otherwise curb their thirst by hefty government subsidies.” “The Chinese government is comfortably positioned to do that, sitting on top of a whopping $1.43 trillion in foreign exchange reserves as of the end of September.” Dow Jones.

Maybe the days of cheap oil are over. Maybe the days of going to the gas station and spending 50 to 90 dollars for a tank of gas are here to stay. I do not know, but relief in site seems a distant hope. So are we ever going to see lower gas prices again? I don't know, but I for sure don't think we will be seeing one dollar a gallon again in our life times. Personally, I believe higher prices are here to stay.

“Why Supply is Not Rising with Higher Prices?” “On the supply side, certain opaque realities are often overlooked and have to be faced clearly. Non-OPEC oil producers are unable to push up oil production as fast as incremental demand is expanding. Old oil fields are declining while new ones are not coming on stream fast enough. This situation will not change in the next few years, unless new oil fields are found.” “So supply is clearly not keeping pace with global demand, as reflected in a steadily shrinking buffer inventory of crude and refined product.” “What has happened to change the oil market at its fundamental level is the change in attitude of O.P.E.C. In the past O.P.E.C. accommodated its customers on the price front ensuring supplies supported lower prices, believing demand would drop if prices rose too high.” “In such an environment the value of paper currencies will spiral down at the pace of the oil price rises over time, leading investors to hold gold and silver, which will rise in value as the value of currencies fall.” "The oil price crisis is far more than just an oil crisis, it is a crisis that is and will trigger a series or more serious crises.",Julian Phillips

We are living in the last days of cheap resources and cheap commodities. Gold Letter, Inc. reviews undervalued gold stocks poised to rise in this time of increasing demand.

Click here to order Gold Letter

Don't forget to email.

By David Vaughn
Gold Letter, Inc.

© Copyright 2008, Gold Letter Inc.

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”  

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2008, Gold Letter Inc.

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Smack MacDougal
29 May 08, 19:16
Global Glut of Money Drives Oil Prices

Why guess wildly about oil prices?

The Global Glut of Money (notes, coins) is driving oil prices higher.

How do we know this?

Every year, a record amount of oil gets drilled and pumped.

Oil and money are commodities. One gets traded for the other.

The ratio of money for oil calculates a value. We call this value a price.

If oil is rising, and it is, and prices are rising, and they are, math dictates that money must be rising faster.

The Global Glut of Money has arisen from the lack of New Credit Growth in solid Commercial Credit Opportunities.

Whenever the Efficiency of Money declines -- ratio of notes plus coins to commercial credit growth -- Big Money bids of prices of making factors for use in manufacturing, farming and mining.

Until growth in Commerical Credit for things with goods that folks want to buy returns, prices of resource commodities shall rise.

Michael Lewis
29 May 08, 19:18

If the US Government spent a trillion dollars over 8 years on domestic oil production from known reserves in the Gulf of Mexico, the Continental Shelf and coal gasification instead of War in Iraq gas would be $2 a gallon or less. America could quit sending billions to countries that sponsor terrorism. And reducing our trade imbalance keeps jobs in America. Every billion of trade deficit costs 13,000 jobs. $400 billion for oil last year: do the math.

America has 1/4th the coal on planet earth. South Africa is producing 300,000 barrels of gas and diesel a day from coal. And synthetic fuel from coal is cleaner burning than gas. And it can be produced cheaper than from $100+ a barrel crude oil.

Harness your anger at the pump. Call you're US Senators and demand domestic production in this decade. Raise your voice or the oil companies and politicians will assume you are ready to pay even more.

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