Salvation in the cheap oil army
By The Mogambo Guru
I was standing outside of the supermarket, jostling with the bell-ringing
Salvation Army guy for attention, telling shoppers, "Buy gold, silver and oil!
The governments of the world are insanely creating too much money and credit to
try and alleviate the inflationary ravages of all the previous decades of too
much money and credit, and the result will be the tragedy of terrifying
inflation and all its miseries and suffering for everyone! We're freaking
doomed, you morons, so save yourselves at least!"
Of course, the whole idea of gold and silver as a store of value is completely
alien to these ignorant Earthling boobs, and I don't bother trying to explain
Peak Oil or how oil is a finite resource and how it looks like we have reached
the peak of oil extraction, because it is such a long explanation that before
you get a chance to explain it to them, somebody from the store always
comes out and tells you that they are calling the cops unless you leave right
now and stop harassing the customers, and everybody cheers.
But I now find that I can save a lot of time by just showing them an article
from the Financial Times newspaper, which plainly states that "Output from the
world's oilfields is declining faster than previously thought."
In fact, the Times said that the International Energy Agency's annual report,
the World Energy Outlook, declares that "Without extra investment to raise
production, the natural annual rate of output decline is 9.1%." Yikes!
Not surprisingly, the Times says, "The findings suggest the world will struggle
to produce enough oil to make up for steep declines in existing fields, such as
those in the North Sea, Russia and Alaska, and meet long-term demand." Demand
will be higher than supply!
Interestingly enough, they figure that even with the forecasts of China, India
and other developing countries ramping up oil-related investments totaling $360
billion every year until 2030, it will not be enough, and "even with
investment, the annual rate of output decline is 6.4%." Yikes again!
And beyond this huge decline in supply, Byron King of WhiskeyandGunpowder.com
notes that "According to the International Monetary Fund, Iran, Venezuela and
Nigeria need oil prices above $95 per barrel just to cover their respective
national budgets. Saudi Arabia requires oil prices above $75 to cover its
budget. Well over half of the revenues of the Russian Federation come from
taxes on hydrocarbons. Mexico gets over 40% of its federal revenues from taxes
on Petroleos Mexicanos (Pemex), the national oil company."
He concludes that "low oil prices are causing problems for the oil-exporting
states of the world", which is probably why the Financial Times reports that
"The OPEC oil cartel yesterday cut its forecast for demand growth next year to
500,000 barrels a day, down from 800,000 b/d."
And if that is not enough, since speculators in futures seem to be routinely
slaughtered by the commercial traders, the FT also reported, "Data on hedge
fund positioning from the Commodities Futures Trading Commission showed that
speculators on Nymex had made their most aggressive bet on falling oil prices
since November 2005."
And, as the news just keeps getting worse, Iran just asked OPEC to cut
production by a further 1.5 million barrels per day, which comes just after
OPEC cut production by 1.5 million barrels last month! Yikes!
So, reanimated with a renewed sense of urgency, I go back to the supermarket,
jostle the Salvation Army bell-ringer aside, and loudly reiterate my Mogambo
Message To The Masses (MMTTM) "Buy oil, you morons! Buy oil! Look at this
Financial Times piece if you don't believe me, you jerks!"
Alas, I encountered the same indifference and hostility from the same shoppers,
matching the sameness of the little store manager and his same tired "I'll call
the cops" refrain. Then I went home, continuing the apparent motif, the same as
I always do.
But I bought more oil, which was different than usual, as it is still cheap
thanks to the ignorance of everyone else not buying it! Whee! This investing
stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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