Plunging Fuel Prices Will Not Last

Towards the end of June, the International Energy Agency (IEA) announced a plan to release 60 million barrels of oil to combat the high prices brought on by the Libyan crisis.  That’s about 2 million barrels a day since June 23.  It looks like prices have already hit bottom, and most think the cheap gasoline and diesel fuel will not last.  I think this could be a dress rehearsal for this time next year, just before the 2012 elections–but what do I know?  Guest writer, Brandon Smith from Alt-Market.com, thinks this coordinated oil dump is about more than just controlling prices, and he thinks this is “a disaster in the making.”  Please enjoy this well written post, and Happy 4th of July!!—Greg Hunter.

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IEA Oil Dump A Disaster In The Making

By Brandon Smith Guest Writer for USAWatchdog.com

It’s amazing. In the wake of the 2008 derivatives and housing bubble collapse, created by the U.S. Treasury and the private Federal Reserve with engineered low interest rates and easy money designed to artificially pump up the economy after the effects of the dot-com bust, the faltering markets of 2000-2001, and the rapidly depreciating dollar, we have now seen these same entities pour Trillions, yes, TRILLIONS in fiat injections into every conceivable corner of the markets. They have spent incredible sums on toxic equities (worthless equities, and don’t let anyone tell you different) to “ease” the debt spiral, they have propped up almost every large international bank, they have propped up the Federal Government and the Dollar itself with sizable purchases of our own Treasury debt, and, they have even thrown money into the pockets of foreign institutions and corporate beggars. Keep in mind, that all the debt that these actions generate is eventually placed squarely in the lap of one group of people; the American Taxpayer!

They have manipulated unemployment figures. They have consistently released completely fraudulent CPI (inflation) figures based on calculations which neglect numerous factors that used to be counted only two decades ago. They have used coordinated naked short selling in precious metals markets to hold back the natural spikes in gold and silver values. They have blamed every negative development in the economy (that they could not hide) on extraneous circumstances and outside culprits rather than themselves. They have done all this, to conjure the illusion of recovery for an increasingly agitated general public.

So much tap dancing and snake oil selling, and all it took, was the pain of $4 a gallon gas to wipe everything away…

That’s right, when the cost of driving to work, driving to shop, or driving for vacation doubles, the naïve notion that everything is perfectly normal goes right out the window. Americans complain a lot, but they rarely accept a bad situation as inexorable and take measures to fix it themselves. There is always the “chance” that things will get better tomorrow, or so we tell ourselves. We just ride the wave, and expect the pack of sharks at our back will never quite catch up to our boogie-board of blind optimism. However, when something takes a Great White sized bite out our very wallets, we take notice, and search the horizon for a bigger boat.

I have commented in the past that after only a few months of high gas prices, the wind would easily be knocked right out of our puffed up bailout driven recovery, and so far, that is exactly what is happening. Retail sales are fumbling, vacation destinations are crippled, the housing market continues to dive, in part due to the relentlessly high price of energy. When people travel less, they spend less, they buy less, and they relocate less.

In response, the IEA (International Energy Agency), an organization of 28 countries, has made a very sudden and startling announcement; each member nation will begin dumping their strategic crude oil reserves onto the global marketplace to flood the supply side of the equation, and, in theory, drive down overall oil prices. The IEA will release over 60 million barrels over at least 30 days into the markets, half of which will come directly out of the strategic reserves of the U.S. This is only the third time in the 37 year history of the IEA that this kind of action has been taken. Surely, governments around the world have finally realized that inflation in energy is going to completely derail what’s left of our financial structure, and they are working to prevent this, right…?

Some economists and many in the public will cheer this decision as a fast and decisive solution to the growing oil crises. These people would be foolish. But, perhaps we should look at the debate points from their side of the field, or even the U.S. government and the IEA’s side of the field. Below, we will look at the arguments made in support of the IEA oil dump so far, and why they are utter nonsense…

Lie #1: Oil Prices Are High Because The War In Libya Has Diminished Supply

Better throw on some boots and grab a shovel! Digging through this crap might take all day…

I’ll tell you a little secret, something mainstream economic analysts would rather you didn’t hear: there is NO lack of supply in crude markets. Sorry, the facts are clear. I realize that there are also proponents of ‘peak oil’ out there that fervently want to believe that there is a current and substantial supply side crisis in crude. Whether they are correct or not about the eventuality of peak oil remains to be seen, however, we are certainly not seeing any semblance of an oil shortage today, despite events in Libya.

Libya’s crude production before the war accounted for only 2% of the world’s entire oil output. Oil prices were climbing back towards the high levels seen in 2008 long before the “Arab Spring” broke out in the region. In February, the IEA itself reported that the world oil supply rose to an all time high of 89 million barrels per day. After the Libyan conflict erupted, this production fell by a marginal 700,000 barrels per day:

http://nextbigfuture.com/2011/04/iea-reports-that-world-oil-supply-rose.html

The establishment’s assertion that Libya is somehow the direct cause of energy inflation is a distraction. Libya has little or nothing to do with anything.

Lie #2: The IEA Oil Dump Will Create A Supply Glut And Drive Down Prices

The position that a “lack of supply” is the culprit behind rising gas prices is an outright falsehood. In fact, markets are already awash in oil, and our government is fully aware of this. The U.S. Energy Department has shown a global trend of falling demand for gasoline, and, the IEA has even admitted that this trend is likely to continue through 2011:

http://www.upi.com/Business_News/Energy-Resources/2011/05/17/IEA-sees-US-gasoline-demand-falling/UPI-99911305637281/

http://www.bloomberg.com/news/2011-06-23/-head-scratcher-petroleum-release-to-inflate-u-s-crude-glut.html

Anyone who follows the Baltic Dry Index also knows that freight shipping has collapsed back down to levels near those that appeared right before the 2008 debt bubble burst. This means around the world there is less demand for nearly ALL goods, and many commodities necessary for manufacturing, not just oil. Lower demand means greater available supply. Therefore, supply is in no way the issue when it comes to high oil prices. Again, the supply argument is a distraction away from the truth. Yet, this has been Treasury Secretary Timothy Geithner’s primary rationale for supporting the IEA dump:

“We saw a very substantial sustained supply disruption. These reserves exist in part to offset those kind of disruptions,” Geithner told CNBC television.

http://www.reuters.com/article/2011/06/24/us-usa-economy-geithner-oil-idUSTRE75N5ZK20110624

So, to reiterate, there is ALREADY a glut in oil markets, and there has been since at least 2008. If there was actually a supply side crisis, trust me, you would know it. If you want to study a true crude supply crisis, then you only need glance back at the energy crisis of 1979 when Jimmy Carter ordered a cessation of Iranian oil imports and the Iran/Iraq war began. When you have to wait in long lines at the gas station just for a few gallons of unleaded, then you might be in the middle of a supply crisis.

After we accept the fact that supply is high and demand is low, we are then faced with an important question; why in the world would the IEA report high supply and low demand, and then expect to have any significant effect on oil markets by dumping our strategic reserves?!

Lie #3: The IEA Oil Dump Was Designed To Hit “Speculators”, Who Are The “Real” Cause Of Energy Inflation

Back in 2009 after the first major gasoline spike subsided, I spoke often about the mainstream financial media’s strange obsession with “speculators”, and the consistent use of talking points obviously designed to condition the American public into associating all oil price jumps with scheming investors in the shadows out to corner the market. My theory back then was that once oil began to skyrocket again due to the crumbling value of the dollar, establishment pundits and government officials would come back once again to point a finger at the speculator boogie man, and draw attention away from our inflating currency. Sure enough…

http://www.foxnews.com/politics/2011/04/22/obama-form-task-force-tackle-rising-gas-prices/

As we have seen, supply is not an issue, and so speculation should not be either. However, if speculators have actually been hoarding stocks and supplies in order to artificially drive up the price of crude, then the IEA announcement should have sent them scrambling to phone their brokers to sell-sell-sell! The shock to oil markets should have been extraordinary. But what happened? Not much to write home about…

The Brent crude index saw a relatively moderate price drop from around $113-$115 a barrel down to $105 a barrel, and currently, the price is showing potential to climb back up!

Initiating the release of the strategic oil reserves of nations across the globe caused an overall price drop of a few bucks? I guess speculators weren’t having much of an effect on the market after all.

So, if speculators aren’t the cause, and neither is limited supply or high demand, then what IS the phantom driver of inflation in energy? There is only one other possible answer; devaluing currencies. The IEA can pour all the oil they want into the markets and it won’t change a damn thing, because higher supply does nothing to strengthen the foundation of the dollar, which is being swiftly eroded by the Federal Reserve. Have they accomplished a minor halt to rising prices and visible inflation? Yes. Will prices bounce back even higher in the near future as the Fed continue to inject fiat into the economy? Absolutely.

The Consequences Of Reserve Depletion

The IEA announcement comes directly after the last OPEC meeting ended in a bitter split between member countries over whether to raise crude production levels. The decision by every country except Saudi Arabia to keep production steady was the right one, of course. However, elements of the U.S. and the EU were downright unhappy with OPEC’s unwillingness to help hide the weakness of their respective currencies. An OPEC decision to increase production would have at least influenced market psychology, and allowed prices to soften for a short time. So, without OPEC support, the central banker controlled apparatus turned to the IEA to open the floodgates of petroleum. OPEC nations, as one might imagine, are not happy…

http://www.reuters.com/article/2011/06/23/us-opec-iea-idUSTRE75M6J520110623

There are several threats associated with this development, and there is a distinct possibility that these have been deliberately provoked, if one considers that a weakened America ripe for centralization is the true goal.

First, OPEC countries could easily retaliate against the IEA by dropping their own production levels. Not only will the IEA action be meaningless (as we have shown above), it could also directly trigger a REAL supply crisis if OPEC decides to dam up the river. The U.S. is very unpopular in the Middle East, Africa, and Venezuela already. Now, the IEA has just given these regions a perfect excuse to dish out some economic vengeance.

Second, traditionally, if there is a real supply side crisis caused by OPEC, our most important stop-gap would be to tap into our strategic reserves. Unfortunately, we have just put those reserves on the market without batting an eye. So, in essence, we paid a very high price for a bullet that we will one day shoot ourselves in the foot with. That is to say, we have dumped our strategic reserves and set in motion a possible disaster which those reserves were supposed to save us from! Its mind boggling!

Third, there is very little stopping OPEC at this point from decoupling from the U.S. dollar completely, especially if crude prices continue to rise despite the IEA dump. The fact of currency inflation and dollar implosion will be so exposed that no one, not even “Tiny Tim” Geithner, will be able to deny it. Once the illusions of “limited supply” and “speculation” are cast aside, the global focus will end up squarely on the dollar, and the IEA dump will have sped up the process dramatically.

I don’t know if anyone else has noticed, but this country has been thoroughly gutted over the past few decades. Our industrial base has been dismantled and shipped overseas to the benefit of foreign nations and corporate feudalists. Our grain reserves, once ample, have been depleted to an all time low. Our currency has been systematically debased. And now, our oil reserves, without rational cause, are being sold off only to feed the catastrophe our government is supposedly out to stop. Are the American people being prepped like a glazed ham for the fires of the globalist oven? Is this really all due to coincidence and stupidity as skeptics claim, or is there something else at work here? I find it hard to believe that the IEA and our government are not aware that their proposed strategies conflict with their own source data, or that they are completely oblivious to the destruction they are about to reap upon our economy. The latest IEA decision is just one more piece of evidence of an agenda of deliberate financial destabilization trending towards a disaster that serves the interests of a select few, to the detriment of all the rest.

You can contact Brandon Smith at: [email protected]

 

Comments
  1. dejayajay

    I am worried that the US government, who ever that may be, is setting things up so that American’s discover an ‘enemy’ worse even than Bin Laden, thus distracting the masses with the ‘necessity’ of engaging in even greater global conflict. Nothing like a common enemy to rally the people around a leader, and what better enemy than a world that is intent on destroying America by making it pay parity prices for oil.

    • Greg

      Dejayajay,
      Thank you for giving your comment. It is certainly possible.
      Greg

    • Dean M Smith

      Would not surprise me. So much information is classified. They have been repeatedly lying to us for my life time. The media just parrots the government as what they say is fact. Journalism seems more like pr than anything else. More manipulative than informative. No one is held accountable in the government or Wall Street for obvious crimes. We live in a blatant plutocracy it seems, where the interests of those at the top are taken over the interests of the welfare of the nation. Congressman Ron Paul recently said we are moving towards a “soft Fascism” that may very well be. Yet he and the few in government who try to serve the majority of the American people are branded as pretty much insane by the media. Noticed that when Ross Perot ran for President both times. Crazy my butt he was dead on correct about NAFTA being a terrible idea. People really need to think more.

  2. g. johnson

    hey greg,

    now yer talkin. this brandon smith guy has a clue or two. and the stones to look deep into the madness that is our 21st century.

    finally, someone who exposes the peak oil scam for what it is. just another in a long list of commodities being monetized for highest possible profit at the highest possible cost to to the consumer using completely specious supply and demand data to create false shortages.

    and who is doing the profiting? anyone know?

    here’s the deal. i owe nothing to noone. so, don’t come at me for the payback. go to the one’s who stole it in the first place and demand that they make it right.

    seriously, justice is the only solution. and the justice department is not going to do it for us because, alas, they are part of the problem not part of the cure.

    our money has been and is continuing to be devalued.

    does this mean that the sun will no longer rise in the east? no. does this mean that the rain will never fall on our crops again? no.

    what this does mean is that the value of your productivity is being diminished. this means that your value as a member of society is being diminished. this means that you are being diminished. very soon, someone is going to step forward claiming the “authority” to make decisions regarding who is “serviceable” and who is dead weight.
    i am gonna stop here. you figure it out.

    just remember. your children’s future is at stake. are you stepping up to the plate, or sitting in the bleachers cramming overprice hotdogs down your throat?

    • Greg

      G. Johnson,
      This all comes down to good old fashion inflation cause by massive creation of currency. I think Brandon Smith is on target with this post and I am happy you liked it. Thank you for the comment and feedback.
      Greg

  3. brian

    Happy 4th of July Greg!

    Looks like we will be in need of a second grab for independance sometime soon now!

  4. george

    Hi Greg, thanks for putting Brandon on! If this was their best plan, we really are in trouble

  5. Dean M Smith

    Thanks for sharing this article very good read.

    To answer Brandon’s question:

    “I don’t know if anyone else has noticed, but this country has been thoroughly gutted over the past few decades. Our industrial base has been dismantled and shipped overseas to the benefit of foreign nations and corporate feudalists. Our grain reserves, once ample, have been depleted to an all time low. Our currency has been systematically debased.”

    Yes I have noticed. I am working class and its been a struggle at times, the early 90’s and the present being the worst. Always been interested in politics and history and that kicked into hyper drive when I decided to have children in 1998 and after 9/11(the news kept changing, and disappearing). As a father of 3 very concerned about the world when my children are adults. It just seems that too many of us American’s are too docile and self centered. A free society takes effort from all to maintain that freedom. It seems most do not even understand the word freedom anymore. The way I see it to have a government that does not work for everyone and only the few and to obey them without question, is not freedom. It seems more suitable a life for a dog and not a human. If the majority of American’s were as they are today in the time of the revolution, we would still be a colony of England. Waving the flag and mindlessly chanting does not make you a patriot it makes you a drone. So much of what has been happening in the country was predicted as a possibility by many of the founding fathers and other great people of our countries history. The constitution was written largely to prevent disasters as the of the current government. It time to go back to the roots of the United States of America. The three branches need equal power restored, war should only be fought if ratified by congress, corporations should not have the rights of humans, congress should have control of currency etc.. This nation at one time was admired by the world, that admiration is turning into hatred. Enough of the empire lets return to the republic that many brave Americans spilled their blood to maintain. Real change comes from the bottom, it always has. Not by some lying pr man pretending to be a leader from either party. Vote on the person not the party, vote on the persons actions not their words.

  6. Diane Carol Mark

    Hi Greg,
    The author cites some concrete points. There is another excellent article on the same topic of releasing US oil reserves that was written by the NIA National Inflation Association. It came out last week and I recommend it since they include a lot of math explaining how our strategic oil reserves would be implemented in a crisis. It’s posted on their website.

    🙂 Diane

  7. Sean S

    Interesting article.

    I’m am very much with Sprott Energy Fund Portfolio Manager, Eric Nuttall, on this issue. As Mr Nuttall very succinctly put it, in part, in an interview just a few days ago:

    QUOTE
    ” What I fall back on is supply and demand data, which I find to be very reliable. Despite an increase in weak economic data points in several developed economies, I still believe that the world oil market will tighten heading into the fourth quarter of this year (Q411). We entered 2011 in a state of being undersupplied by about 1 million barrels of oil per day (MMbpd). So, it wasn’t a surprise to me back at the last OPEC meeting that Saudi Arabia was trying to increase actual production by about 1 million barrels. The recent release from the Strategic Petroleum Reserve (SPR) is nothing but a politically motivated move to try to suppress the price. While this may create a ceiling of around $90/bbl for the next several months, demand has been surpassing supply and the market is becoming increasingly tight.”

    “The oil demand story is about emerging economies. China was responsible for 33% of incremental demand in 2010, and in the most recent data from May, demand is up 13% year-over-year (YOY). China now consumes more than 9 MMbpd, a net change of over 1 MMbpd. I’m looking for demand destruction in the developed economies; however, incremental net demand out of China, India and even parts of Africa more than outweighs that demand destruction. The oil market is tight today, and I think that it’ll continue to get increasingly so. Today, we consume 89 MMbpd (million barrels PER DAY)globally; if the world continues to increase demand by roughly 1–2 MMbpd per year, it’s very easy to see a scenario in which OPEC spare capacity could get down to 1 MMbpd within the next two years. In that environment, I think the price of oil has to go higher.”
    UNQUOTE

    ——————–
    Sixty million barrels of oil is a large number but represents only a small amount of the 1.6 billion barrels worth of reserves reportedly held held in SPRs around the globe. So what happens at the end of the release period? Will more IEA co-ordinated releases be contemplated in an attempt to continue with the artificial short term price suppression?

    Oh and by the way, at some stage these released reserves will need to be replenished and the IEA member sellers will have to become buyers in the market to restore their reserves.

    • Greg

      Sean S,
      Thank you for adding content and perspective to this post!!
      Greg

  8. Reader

    I personally have no idea why or who would order the release of the oil reserve of these nations, if my understanding of this situation is actually correct.

    In any event, the big thing expected between now and Christmas is the swansong of another 15 Trillion in debt – just like the first 15T in Ghost assets that disappeared circa 2007 – 2008.

    This time around it will European Debt problems that will act as the ‘detonator’ and the Gunpowder, as usual, is the UK/US Banks and government *ahem* finances…

    Warp 6, Mr. Sulu! 😉

    • Greg

      Thank you Art Mitch and Reader for the comments that added to this post.
      Greg

  9. Mitch Bupp

    Thank You Brandon and Greg, Our economy is not sustainable. Currently the bubble economic theroy that we live under today has undermined the whole economy. Bubbles are nothing more than inflationary pressure put on a commidity like housing or energy, where a plan by speculators is put into motion to drive up prices so a profit can be taken. The obvious damage to the economy done by bubbles is compounded with the fact that the bubble prices never really go back to where they should be. Currently Fannie mae and Freddie Mac have put an artificial bottom in the housing market by insuring the loan on a home. This causes an artificial base price for housing and without this false bottom housing prices are artifically high …even now …. without Freddie and Fannie housing prices would be down another 40 percent!

  10. Art Barnes

    Greg, good article, oil is going higher that is a given. Did you notice that when the gas price dropped during the last few weeks it still settled above the last low; always does. As Brandon pointed out, it obvious that the real evil here is the devaluation of the dollar, not the supply of oil or oil producing countries. Clearly, devaluation is not being worked on for solutions but perpetuated by the elite with the Fed & Wall Street carrying the banner. Brandon’s “select few” who benefits from devaluation needs to be identified, but you can bet its not your next door neighbor in Queens N.Y, Toledo, Ohio, or Sacramento, CA.

  11. cm

    I hear the total release amounted to all of 18 hours of world oil consumption. With the help of a major hyping it worked just long enough for the USA sheeple to have a 4th of July holiday undisturbed by $4 gas prices.

    Otherwise somebody might get upset and actually read the Declaration.

  12. Mike

    You think this is bad wait until you hear “peak water” used by the corporate feudalists or their corporate media propaganda organ. Water is the ultimate commodity to monetize because it represents the ultimate form of control. Restrict oil and you can control movement of goods, food and travel. Restrict water and you can control life.

  13. jack mckigney

    Water, indeed, more critical to survival than oil, Note that Libya, on the surface a desert, lies above a giant aquifer under the Sahara desert, which could be pumped and shipped presumably using much of the existing infrastructure to the conquering parties. The Arab Spring in Egypt and Libya, especially, may be a play for a literal fountain of life.

    Brazil sits under the largest aquifer in the world, maybe 80% of the worlds underground supply, so how many American Frontier cowboy types are buying land in places like Paraguay, Uruguay and Argentina, where they promulgate a new frontier much as their ancestors did a century and a half ago in the American West.

    Montana and the Pacific Northwest, affected by the Pacific Jet Stream, may take second place to Canada, Australia, and mountainous regions of South America as a refuge for wealth and rebirth of a social class that has largely been complicit in bleeding America dry.

    Canada is prepping their electrical grid for a possible coronal mass ejection directed toward Earth. CME electrocuted some telegraph operators supposedly in the mid 19th century. If true our solar system is entering a 3000 year period of instability, explains many underground projects launched as civil sewage reworking or the infamous 20 year construction under the Denver airport, and not sure but it was reported that google maps stop short at certain parallels near the poles.
    These guys and their scientists and recently launched solar observing satellites, my multitudes of nations, must have been known this years ago, so perhaps this final economic worldwide collapse was not only scheduled but implemented to further their capital construction needs for the few worthy to survive.

  14. jack mckigney

    oops. of course I meant Brazil sits above the aquifer

  15. jack mckigney

    sorry..I was dead wrong about google earth not showing poles.

    UNESCO has published a worldwide map of aquifers that’s worth looking at, sort of a roadmap of “haves and have nots” from a geopolitical perspective on the distribution of underground H20.

  16. Gas Price hater

    How much higher can gas prices go. Between my partner and I We are out about $100 on gas per week. The Oil Companies needs to do something about this. Its out of controll. With the summer right around the corner you know prices are only going to increase. Guess I will be taking my bike to work.

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