A New Age of Perpetually High Oil/Gas Prices?

By: Clif Droke | Sun, Apr 23, 2006
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The price of oil spiked to a high of $75 on Friday, April 21, amidst much speculation about just how long the upward trend in the oil price will persist. Meanwhile, talk continues in the press of the inevitable rise in gasoline prices at the pump in the warm weather vacation season in the U.S.

The mainstream news media is floating yet another trial balloon before the American people, this one aimed at testing their collective response to idea of permanently high oil and gas prices. Should Americans react with the ambivalence that has become all to common in recent years, the oil oligopoly will have take this as an "all clear" sign and will press forward with their campaign to increase profits through raising the oil price.

"High oil prices could be here to stay" read the headline of a recent MSNBC news wire story. The sub headline to this news story asserted that the "Strong global economy continues to strain limits of production capacity." Here is another instance of the financial press blaming an expansive economy for higher oil prices, which is just another way of saying that the average working man is to blame for high oil prices, not the oil companies. The booming economy of the late '90s for a time actually resulted in lower, not higher, oil and gas prices. At one point during the peak of the bull market the price of oil fell to $10/barrel while gasoline at the pump could be had in some cities for less than $1/gallon.

Lingering in the background of the aforementioned assertion that global economic strength equals high oil prices is the other line we're constantly fed that oil supplies are severely limited due to "peak oil." Add to that the artificially reduced refinement capacity and we have all the ingredients for a perpetual oil and gas price sticker shock. At least these are the rationales offered by the oligopoly.

The global oil cartel's experiment with perpetually rising oil prices is succeeding only because global industrial production is increasing, especially in newly industrialized countries (NICs). This really isn't an oil supply issue at all; it's primarily about the production of the emerging economies. For without the relentless industrial production of NIC industries the oil oligopoly wouldn't have a basis for their current asking price for fuel.

Another point worth considering is that U.S. and British military presence in the Middle East is another major factor in the rising trend for oil prices, and the fact we are at perpetual war tends to increase the oil price. Oil companies make out like proverbial bandits in war time, just as Standard Oil did during Vietnam. One can only assume that U.S. military's presence in Iraq and the surrounding region is at least partly for the purpose of aiding the oil oligopoly (especially considering the well documented oil connections of the current administration).

The plan now being carried out by the oligopoly involves gradually raising the oil price over time, pausing for short periods of weeks-to-months to allow the economy some "breathing room" before letting the uptrend continue. During this time of rising oil prices, the natural gas price is kept within a wide trading range and allowed to spike upward when there is the least risk to the economy. In other words, the oil and natural gas trends are kept from surging together for very long as this would place maximum strain on the U.S./global economy and financial system.

The price of natural gas closed at $8.21 on Friday, April 21, near its recent high and just below its short-term uptrend channel upper boundary. As we looked at in earlier reports, natural gas should continue to trend higher in the next few weeks-to-months, albeit at a gradual pace (as opposed to a sharp upward spike). At least that's how I interpret to the wave forms in the natural gas chart.

The AMEX Natural Gas Index (XNG, recent close 428.90) closed at its 10-week high and is still in a confirmed uptrend after giving us a turnaround signal in earlier March. The leading natural gas equities should continue to gain in the weeks and months ahead as discussed in the previous reports.

So why would the oligopoly risk endangering the global economic boom, not to mention their long sought after goal of a fully integrated global economy, that has been carefully built over the past several decades? What could possibly be their intent in forcing Americans to live in an age of perpetually high oil and gas prices (other than the obvious motive of greed)? Do they actually think they can get away with it? In short, yes, they obviously believe they can and will get away with their campaign of artificially raising fuel prices. In fact it fits perfectly with the plan for an integrated global economic order, where the U.S. will be forced to modify its erstwhile high standard of living (based in part on low fuel prices) and "average in" with the economies of the NICs and developing countries.

Unlike the artificial "fuel crisis" of the 1970s (which was an earlier oligopoly experiment with raising oil/gas prices), American's don't have the same motivations for protesting the currently high prices. When the fuel price level becomes too high that it becomes a topic of everyday discussion and frustration, the oligopoly will temporarily back off and let prices settle down a bit. Then as soon as the frustration has subsided, upward and onward goes the oil price. We've witnessed this recurring pattern time and again in the last couple of years.

Another reason this time differs from the '70s experience is that the current financial milieu is more conducive toward acceptance of the rising oil price trend since Americans as a whole feel "richer" today than they did 30 years ago. This is due mainly to the opening up of the liquidity flood gates and easy access to bank lending at much lower interest rates than prevailed back then. This then is another reason the oligopoly is likely to succeed with their current campaign of rising oil/gas prices.

With the Fed being very cognizant of the potentially adverse effects that high fuel prices could have on the economy, including the all-important housing market, it will do everything in its power to work with the oligopoly to keep the rising oil price trend from having negative repercussions in the financial markets. That means that the housing market won't be allowed to collapse, high fuel price notwithstanding, and neither will the stock market. Stock prices will be allowed to continue their upward path over the next couple of years as a means of giving the Baby Boomers a temporary escape mechanism from the effects of the high oil and related costs on their retirement savings and lifestyle until the fateful 2009-2010 time frame.



Clif Droke

Author: Clif Droke

Clif Droke

Clif Droke is a recognized authority on moving averages and internal momentum. He is the editor of the Momentum Strategies Report newsletter, published since 1997. He has also authored numerous books covering the fields of economics and financial market analysis. His latest book is Mastering Moving Averages. For more information visit www.clifdroke.com

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