22 October 2008

Oil Supplies and Costs Impact National Security

OPEC is meeting this week to decide how much to reduce production, to support falling oil prices. Different OPEC members have different expectations for the meeting.
Saudi Arabia needs oil prices of less than $30 a barrel to balance its government budget, according to Merrill Lynch & Co. estimates. The United Arab Emirates requires $40 a barrel and Qatar $55.

Iran, with double the population of Saudi Arabia, has a breakeven point of about $100 a barrel, according to Edward Morse, managing director and chief economist at Louis Capital Markets LP in New York. In Venezuela, where President Hugo Chavez's government is spending oil revenue on social programs, the figure is about $120, he said.

.....Oil options trading shows the probability that crude will fall below $50 a barrel by June has more than doubled in 10 days, Deutsche Bank AG said in an Oct. 17 report. There is a 9 percent likelihood that June 2009 crude oil contracts will expire below $50, up from 4 percent, Deutsche said.

The world's industrialized economies will expand next year at the slowest pace since 1982, the International Monetary Fund said Oct. 8. Growth will weaken to 0.5 percent in 2009, from 1.5 percent this year, sending U.S. unemployment to its highest level in 16 years, the agency said.

Oil demand may fall for the first time in 15 years this year as the worst financial crisis in decades tips economies into recession, according to the Centre for Global Energy Studies, a London-based consulting company. _Bloomberg
Naturally the tyrants of Iran and Venezuela wish to push prices as high as possible. But with the slow global economy, and the potential for an Obama depression in the works in the US if the baby Illinois Senator is elected, the natural direction for oil prices would be downward even further.

Last summer, Mr. Fin assured me that the final repercussions of near $150 a barrel oil would be profound. He suggested that by the time the impact of such prices rebounded down the global business markets, a recession could easily be triggered. The lingering effects of overpriced oil on world business, the huge money losses by financial markets over-invested in oil and commodities, the credit crunch caused by US Democratic Party failure to address the subprime mortgage market in a timely manner, etc combined with other cyclic factors to create the current global slowdown.

When Obama, Boxer, and Pelosi work to starve the US of oil and energy, they are making the nation far more vulnerable to outside threats. Many of these threats originate within oil producing countries, whose product the US is forced to buy when Obama, Boxer, and Pelosi prevent the US from using clean alternatives--coal, oil sands, oil shale, heavy oils, etc. Current price levels are hurting oil tyrannies which are also state sponsors of terrorism. Sponsoring terrorism is expensive work for Iran, Venezuela, and friends. You might even think that Obama, Boxer, and Pelosi want to help the poor, cash-stressed terror sponsors?

How quickly can the US and world markets rebound? As the threat of world socialism hangs like a pall over world economies should Obama be elected, few people are suggesting reasons for short-term economic optimism. George Gilder is one of the exceptions. In this Forbes article, Gilder looks at several new technologies that might trigger important new economic activity. It is good to see an optimist when the news media is so universally gloomy in its presentation.

We will need to transition from fossil fuels to renewable energy. That transition will take a few decades. Fortunately, the world supplies of coal, oil sands, oil shales, and heavy oils will allow those decades, and more if necessary. In addition, nuclear energy should provide an even wider margin of safety for transitioning to renewables such as nuclear fusion, enhanced geothermal, and nano-enhanced solar options with utility scale storage.

Even better, technology for making biofuels from algae, other microbes, and biomass are progressing even faster than Al Fin previously expected. Significant (10 to 20%) amounts of transportation fuels should be provided by biological means by 2025, with an ever increasing capacity after that. In fact, if one were looking for a good investment in gloomy times, agrochemicals represent a good prospect.

Needless to say, these would be good times to limit your debts and protect your assets. A socialist revolution in the US would definitely dim your prospects for rapid wealth creation, but there is no reason for you to share your wealth more than you really want to, despite what Obama and his wife Imelda er, Michelle might wish.


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“During times of universal deceit, telling the truth becomes a revolutionary act” _George Orwell

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