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January 18, 2006

The Looming Fiat Currency Train Wreck
by Rob Kirby

While the bulk of the Western World's main stream media continues to make pronouncements about the price of both crude oil and gold continuing to rise as a result of Iran's nuclear aspirations - they have completely and utterly ignored the stark, dark reality of the currency train wreck [that is empirically only beginning to unfold] right in front of our eyes.

Iran's Potential Influence

So Just How Much Oil Does Iran Produce Per Day Anyway? Well, let's ask the experts over at the U.S. Department of Energy [DOE] - shall we?

In 2003, Persian Gulf countries had estimated net oil exports of 17.2 million bbl/d of oil (see pie chart). Saudi Arabia exported the most oil of any Persian Gulf country in 2003, with an estimated 8.40 million bbl/d (49% of the total). Also, Iran had estimated net exports of about 2.6 million bbl/d (15%), followed by the United Arab Emirates (2.4 million bbl/d -- 14%), Kuwait (2.0 million bbl/d -- 12%), Iraq (0.9 million bbl/d -- 9%), Qatar (0.9 million bbl/d -- 5%), and Bahrain (0.01 million bbl/d -- 0.1%).

Now let's take a look at what 2.6 million barrels of oil per day is really worth in term of "potential new Euro demand" anyway? Here is the math:

2,600,0000 x 60.00/barrel x 30 [days per month.] x 12 [months per yr.]

TOTAL = 56.16 BILLION [ANNUALIZED] WORTH OF NEW EURO DEMAND

Now I don't know about you folks, but where I come from, 56 Billion still buys a whole lot of love and respect.

Now, Let's Take A Look At Venezuela

Let's get the lay of the land, so to speak, right from the horse's [Chavez's] mouth - 1.5 million barrels of Venezuelan crude [60 % of production] is currently purchased by the US of A each and every day. At 60.00 per barrel, this amounts to 60 x 1,500,000 x 30 [days per month] = 2.7 billion per month Worth of EUROS [32.4 BILLION WORTH ANNUALIZED]. This is simply the amount of Euros the US will need to purchase [read: print] or borrow to maintain its current quota of Venezuelan crude should Chavez sell all output for Euros. Additionally, the balance of Venezuelan crude will fetch another [60.00 x 1,000,000 x 30] = 1.8 billion per month worth of Euros the rest of the world will need to purchase said oil, or, A FURTHER 21.6 BILLION ANNUALIZED. So folks, cumulatively - in the case of Venezuela alone - we are potentially talking somewhere in the neighborhood of NEW DEMAND FOR EUROS OF 54 BILLION US DOLLAR EQUIVALENT PER YEAR.

Oh well, at least the Fed will save a few nickels and will no longer be publishing M3 [money supply] data. If you can't see the money printing - I guess it can't hurt you, eh?

Step A Little Further Back, Shall We?

In big round numbers , daily global oil production runs in the area of 82 million barrels of oil per day. The U.S. consumes approximately 20 million barrels of oil per day - yet only produces [domestically] about 5.4 million.

How often are we bombarded with the "clap trap" - not to worry - that rising crude oil prices self serve to reduce demand [consumption]? Seems to me, forever! Meanwhile, the empirical realities suggest COMPLETELY THE OPPOSITE where oil is concerned. LOOK AT THE GRAPH!

Compliments: M.W.Hodges, The Grandfather Report

While the price of crude oil has increased dramatically over the past 5 years - U.S. consumption has factually grown. Also, by looking at the production line in the chart above - we have a crystal clear illustration of exactly what "Peak Oil" really is - right in front of our noses!

Imagine, main stream pundits continue to speak of interest rate conundrums without even mentioning the 300+ TRILLION U.S. GORILLA [interest rate derivatives - swaps] sitting on top of the interest rate complex. Why has no one stopped to investigate or explain the cancerous growth [123 Trillion at Q3/03 - now exceeding 300 Trillion [Q3/05] - pg. 47 of 126]? Also, the most recent rise in the price of gold - the main stream media would have us believe it is wholly attributable to increased nuclear tensions with Iran - failing to mention a well documented 16,000ish ton short of physical metal on the part of Western Central Banks?

In addition, has anyone not noticed that while "officially" inflation continues to be reported in benign terms [around 2% - core rate?] - the cost of virtually EVERYTHING [except DVD players] from health care to insurance/professional premiums to copper to real estate and municipal taxes keeps going up?

Misreporting, denial and refusal to admit that our markets have been hijacked - rigged and 'stick handled' is EXACTLY WHAT HAS CREATED THE BULK OF THE PROBLEMS WE NOW FIND OURSELVES FACING. Oil is slated to begin trading for Petro-Euros on March 20, 2006.

Put simply, we just don't have much time left to "start getting it right". In Fed 'baseball parlance' - it's the bottom of the ninth, the count is full and the sacs are drunk - but does anyone really know what the score is?

Rob Kirby
Kirby Analytics

Copyright © 2004 - 2006 Rob Kirby

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