OIL: Conditions are Ripe for another Great Depression.

It makes sense that the fastest growing economy with the fastest growing energy demand is the first to run into trouble.

China has decided to reverse privatization of oil wells and keep them as state property. From China seizes private oil wells, mirrors Russia�

After a brief flirtation with private investment in the oil sector, Beijing has started cracking down on independent players in the field. In one of the most flagrant examples, the government has ordered the seizure of thousands of private oil wells in northwest China as part of an environmental cleanup and overhaul of the industry.
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Strong demand for energy from the Chinese economy has pushed up world oil prices. The latest forecasts from the State Reform and Development Commission say China will continue to face prolonged power shortages this winter.
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Shaanxi's small re-nationalization mirrors a much bigger battle fought in neighboring Russia by the Kremlin to regain a state foothold, also in strategic oil reserves. The year-long legal onslaught on Russian oil giant Yukos has enlightened Beijing on the political and economic hazards of divesting the state of strategic energy resources.

The energy crunch combined with a hot economy has lead to the first signs of inflation. In fact China has just raised its interest rates for the first time in nine years!

They did it to cool inflation because growth remains high at 9.1% for the third quarter. They also raised the ceiling on lending rates for banks that can now charge up to 14% per annum on loans.

The country's first interest rates rise in nine years, announced Thursday, contrasted sharply with the well-signaled, steady rises that are happening in more developed economies, and the move caused financial markets around the world to sit up and take notice.
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Chinese officials and most analysts, however, said the rate rise was intended simply to cool inflation and had nothing to do with any plans to revalue China's currency.
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Of more long-term significance than the rise in benchmark interest rates was the simultaneous announcement that the PBOC had raised the restrictive ceiling on lending rates. Banks can now charge up to nearly 14% per annum on loans. source

These measures to cool inflation will have the opposite effect in my opinion. This makes it more expensive to borrow money and attracts speculators who have money to lend. Inflation is a vicious little cycle. The article I got this from states that this is a positive turn of events and will ensure a soft landing etc. etc.

I�m not convinced.

More on this story:

China Raises Interest Rates for First Time in 9 Years from Bloomberg
Oil Steadies, China Rate Hike Unsettles from Reuters
China Says End to Rate Cap May Allow Broader Lending from Bloomberg

Wanna solve the global fuel situation, albeit, not very realistically or what anyone may want to hear......have a global depression.

Perhaps this is what is needed anyhow....may bring the world back to 'reality'...




seekerof

[edit on 1-11-2004 by Seekerof]

I just read a very good book called The End Of Oil

The book talks about peak OPEC and Non-OPEC oil production among other things. It appears the Iraqi war as much a war to gain leverage against OPEC as it was to help in the war on terror. A good read on reasons for the Iraq war is America's Secret War.

Before reading the 2 books I was inclined to believe that the markets would help to prevent a long global recession or depression but now I would tend to agree that sooner or later there will be economic turmoil followed by a big war over energy.

Four more years of Bush and the markets react.

The US dollar has hit record lows as the central banks and moneymen of the world markets are running to the Euro as a safe haven while the US embarks on 4 more years of Bush the �war president� with nothing to loose. US Dollar hits all-time low against Euro and TOP STORY: The Death of the U.S. Dollar

Watch the debt climb.

Anyone know what happens in a country with a falling currency and record debt? I�m not an economist but Argentina and Mexico come to mind.

Gold, always a safe haven has risen above $433/ounce also based on fear of 4 more years of deficit spending. Gold futures gain ground as the U.S. dollar slips

And before everyone jumps on me because oil has hit a 5 week low, please look at the long-term trend. This dip is due simply o the fact that the oil industry has won another 4 years of firm control over the White House. See $80 Oil, Here We Come!!! for an excellent analysis of the spare capacity wall as well as the overstated reserves problem.

Some of the industry�s most informed participants believe there is little that can be done to increase worldwide oil production. Earlier this year, British Petroleum announced that it will be returning to shareholders all cash flow it receives in excess of $25US per barrel. For every dollar the company receives in excess of $25US per barrel, BP will adjust its dividend or increase its share buyback program to return the cash flow to shareholders. BP has essentially given up its efforts to increase production or even keep production flat. Instead, the company has chosen to give shareholders back their capital with interest.

For an analysis of the global picture read (as well as some investment advice) THE PERFECT OPTION.

Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:

- Large budget deficits
- Deteriorating international trade balances
- An eroding international currency
- Eroding financial confidence
- Growing protectionism
- An expanding war on terrorism and the need for security
- Growing entitlements

Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.
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We are now at an historic inflection point in history�with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn�t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.

The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.

On another front China has just entered into the Middle East oil market in a big way upsetting the geopolitical game of the United States. Read China Rocks the Geopolitical Boat!

Lastly, I realize that there is not much commentary going on in this thread but I know people are reading. This thread has over 1800 views with over 400 in just the last 10 days.

Am I nuts or are we heading for an economic meltdown?

Feel free to u2u me with comments if you do not wish to derail the thread.

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I'm sure they could easily invent another kind of energie to replace oil but they do not because oil puts money in their pocket!
Any one who invent a car that does'nt need gas at all will be put away and banned!
It's just a MONEY thing, and we, consummers have to pay the price like we have no other choice! If gas price goes up we will pay more..and so on because we r dependant of it! And we will keep on paying until when???????what is our futur?

Ameliaxxxxxxxxxxxxxxx

Check out the October 23 2nd hour broadcast at www.netcastdaily.com...
What to Expect as the World Runs Out of Cheap Oil

The high cost of oil....$50 a barrel, will put a squeeze on the U.S. economy. The growth of the economy will be slowed and the consumer will have to "slow down" their spending. This will hurt a variety of sectors from home improvments to service jobs.

This high price of oil has also influenced the stock market and the U.S. dollar. The dollar has been sliding which here of late has helped the U.S. export market. The stock market has shown weakness with higher oil, but most of Wall Street saw the higher price coming.

I ask if raising production will help. However a yes answer is not helpful for the near future. The problemin the U.S. is the lack of refineries. Our refineries are at the capacity limits already. They can't refine any faster. We need more but the situation with environmental laws makes the job of building new refineries very tedious and expensive. Our environmental laws need to be relaxed in this area for at least a five year period so that new refineries can be built. ANother area is new drillling in Alaska. I know that these two areas are not popular with the "green groups" but we need to face and fix the energy problem. If not our GDP will shrink and so will the number of jobs. Our economy is ready for continued growth but this will not happen if our energy problems persist.

Originally posted by cryptorsa1001
Check out the October 23 2nd hour broadcast at www.netcastdaily.com...
What to Expect as the World Runs Out of Cheap Oil

Wow thanks for the link cryptorsa. Excellent program summarizing what to expect medium to long term. I added the page to my bookmarks.

New study raises doubts about Saudi oil reserves

With over 260 billion barrels of proven oil reserves, a quarter of the world's total, Saudi Arabia is not only the top foreign supplier to the United States - the world's largest energy consumer - but also essentially the sole source of liquidity in the oil market. According to the Department of Energy's Energy Information Administration (EIA), the world will become more dependent on Arabian oil in the next two decades. To meet global demand for oil, Saudi Arabia will need to produce 13.6 million barrels a day (mbd) by 2010 and 19.5 mbd by 2020. Both the International Energy Agency and EIA assume Saudi oil output will double over the next 15 to 20 years. In a new study soon to be released, Matthew R. Simmons, president of Simmons and Company International, a specialized energy investment banking firm, contends that this is not likely to happen. He argues that Saudi Arabia's oil fields now are in decline, that the country will not be able to satisfy the world's thirst for oil in coming years and that its capacity will not climb much higher than its current capacity of 10mbd. Considering the growth in demand, this could easily spark a global energy crisis.

Here is the rest of the link.

I just read A Century Of War and in the last chapter it talks about the US installing military bases around much of the worlds oil reserves. The US is also interfering with anyone trying to negotiate contracts with oil exporting nations. IMO if you did not beleive that peak oil was real and close at hand the fact that the US is now taking over control of the oil with its military should change your mind.

Interesting to read some of my earlier comments.

Originally posted by Gools - posted on 10/20/2004

... but it's not the whole deck of cards just yet.

I think that will come after the election and the price of gas is allowed to rise. After all, the oil companies want to keep their people in the White House, so the price of gas is cheap in relative terms. The oil companies are making enough profit from the higher oil prices to give a cut to the consumers in lower gas prices. Whether or not Bush wins they'll put the squeeze on. They have to: demand is outpacing supply.

The inflation trigger?

The gun has gone off with gas prices and the first shot is dead on everyone's pocket book. I can't wait for summer driving season can you? I think I'll be spending time checking out local parks and countryside on my bike.

I noticed that the $80 Oil, Here We Come!!! article was the first to predict much higher oil prices and that The Perfect Option article was the first to claim $100 dollars per barrel.

Other more mainstream forecasters have issued similar predictions...

The Globe and Mail as reported here: Production theory could make $100 oil a reality
CIBC World Markets as reported here: CIBC sees oil at $100 (U.S.)
The IMF as reported on CNN and available here: IMF: Oil could hit $100, hurt growth
As well as Goldman Sachs reported on CNN and available here: Goldman sees oil spiking to $105

Originally posted by Gools - posted on 11/8/2004

Four more years of Bush and the markets react.

Watch the debt climb.

The debt ceiling was raised after the election as anticipated (November 18th): US Debt to hit $8.2 trillion on Monday

The US trade deficit has been setting record highs in the last few months and the US must now borrow over $2 billion a day to pay for its consumption. And the US budget carries with it record spending without including the wars (WAR: Bush to ask for additional $82 Billion).

Oil company profits are based mostly on the price of crude oil not refined products like gasoline. The costs to extract oil have not risen so with the doubling of the value of oil in the last year those companies who do the drilling and own the actual oil are making a killing selling it to refineries. I read somewhere that despite record oil industry profits the US government is giving big fat tax breaks to oil companies.

Some think that oil companies are somehow causing the high oil prices. The price of crude is rising based on simple supply and demand of a limited resource.

Do the people who run those companies know what is going on with oil? You bet and they're in a position to take advantage with the influence they wield to manipulate markets to make sure they and theirs are taken care of.

Sudden and profound social changes are messy.
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That "wind power" graph is intriguing. Net worldwide development at 3,500 MW per year.

But wait. Run the numbers. That is the output of ONE major nuclear power plant.

One plant versus the entire WORLD production of wind power plants. And wind is much better than solar.

People underestimate the size of electricity consumption. Consider that your average automobile can put out over 100 kilowatts (that would be a 4 cyl compact in the USA).

3,500 MW = power of 10,000 cars.

There are probably more than 10,000 cars in my zip code.

The magnitude of the problem with an oil shortage is immense.