Unbelievably, the US government has intervened the Energy Markets by releasing oil from the SPR (Strategic Petroleum Reserve), the same way a Socialist or Communist regime would do.
While it is not our place to discuss the politics of this issue, but rather to clarify the danger that the US is facing now, it is imperative that the reader understands this action is a direct intervention to normal market forces, which is in direct conflict with normal supply/demand dynamics.
While the intended effort of this measure is to provide relief to American citizens of high oil cost this winter, nevertheless, it will delay the recovery of the oil market to its normal level. This will only put off the real correction and solution to the problem. This will affect the consumer anyway, unless the government decides subsequently to subsidize oil like a typical totalitarian state would do. And in event that were done, the consumer will pay anyway - since subsidies ultimately come from the tax receipts of the citizens.
Indubitably, this will inject uncertainty into all oil company decisions, and will delay necessary drilling, which is in dire need right now in order to increase production.
Indeed, the US government's unprecedented action is a slap in their face to all crude oil producers. After many petroleum companies suffered financially in recent years - due to low crude prices - this action hits the financial stability out from under them. Moreover, the government's reckless use of the SPR paves the way for still higher prices next year. You can bank on it. Effectively, this decision will lower actual and immediate future production.
This Will Leave the US VULNERABLE IN THE EVENT OF ANY DISRUPTION IN FUTURE PRODUCTION. Indubitably, the US has many enemies who will see a window of opportunity here.
Certainly, those unfriendly to US interests will not hesitate going forward to use the OIL WEAPON in the face of the US government intervention, forcing the price of oil down.
A couple burning questions of logic for crude oil producers to answer are the following. Why would they want to pump more oil, if it is going to fall in price? Do they want to help the US to lower the high oil price so that there are no damaging consequences from the stagflation that it will cause? Well, the US recently has enjoyed staggering growth, fueled by nearly free oil. And notwithstanding the US prosperity, ALL oil export
producing countries suffered. The international oil industry is trying to recover from the recent state of ruin it was in. Unfortunately, and ironically, the US will have to pay the higher tab now.
The US government's unilateral decision is telling the world there are no more bullets left. The last shot is being wasted, even before the winter arrives. However, this is a shot in the dark, because it is a political shot. It will miss the mark.
The intervention in the markets nowadays is relentless.
The Gold market is intervened and manipulated - and likewise the silver market.
The Stock market is intervened and manipulated as well. Proof of it is the miraculous market recovery on Friday (September 22, 2000), just after the Intel debacle was announced.
The Currency market is intervened to rescue the heretofore plunging Euro.
The Inflation data, the trade deficit and many other variables, even the FIG appear to be relentlessly manipulated.
Something is very wrong. Everything now is being controlled for political expediency, or maybe with more sinister objectives.
While the Personal Savings rate is negative in the US, its Federal, State and Municipal government together with business appear to have a few trillion dollars in savings. Will the government use those savings to subsidize oil ?
The author believes that the GOLD WEAPON might be used now by some oil producers. There is no incentive to stick with the dollar. First they control the gold price, then they attempt to control oil the price. Where doe it all end?
Watch the news.....You will not be surprised if you see next week that some producer is asking for payment in hard currency: GOLD !!!!
Or maybe the oil producers will just close the valves a little -- no need to damage oil reservoirs by overproducing them, if the oil price is falling.
The dice have been rolled...... Much higher Inflation is around the corner. It just has been delayed a few months. Only those that know how to hedge against it will survive. We all know what is the only hedge that works.... REAL Money !!!! Gold !!!!
"Azteca de Oro"
25 September 2000
The information presented by the author is not intended to be used for investment purposes, and it may contain errors. It is intended only to give the reader an eagle's view of the state of the economy, as perceived by the author. It reflects the author's opinion and no representation as to the accuracy of this data is made, as it may reflect on the bias or
interpretation of the author. However, to the best knowledge of the author, the data presented is accurate.