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Global “Oil Shock” Could Sink Obama’s Re-Election bidGary Dorsch As the price of North Sea Brent crude oil touched $125 /barrel last week, the topic of sharply higher gasoline prices suddenly caught the attention of the Main Stream Media (MSM). Spin artists for the re-election campaign of President Barack Obama were quick to deny any responsibility for soaring oil prices, and instead blamed the upward spiral on geo-political tension with Iran. However, since the days of the Yom Kippur War in October 1973, - when the OPEC cartel placed an embargo on crude oil sales and hiked oil prices by 70%, the price of gasoline has been a key variable effecting the outcome of US-presidential elections. In nine of the last ten US-presidential elections, if the price of gasoline was higher at the end of the incumbent’s term in office, than when it began, the incumbent lost the election. The only exception to this trend was in 2004, when the average price on Election Day was $2.03 per gallon compared to $1.54 four-years earlier. George W. Bush won reelection, but just barely, 51% to 49-percent. Since Obama took office, the average price per gallon had doubled to $3.70 and is 43-cents higher than a year ago. It’s up 23-cents just in the month of February. Most analysts say gasoline prices could climb to $4 a gallon, as US-refiners switch to a more expensive blend of petrol for summer driving. But regardless of the cause, the president of the United States gets an inordinate share of the blame anytime there is a spike in gasoline prices, dating back to the Carter administration. While the president is punished in the court of public opinion whenever gasoline becomes too expensive, he receives no reward when gasoline prices are relatively low. If a spike in gasoline prices is sustained for an extended period of time, it usually has a ripple effect of fueling broad based inflation, and begins to chip away at the president’s popularity.
Given the fragility of the Euro-zone’s economy, - the world’s largest trading bloc, the latest upward spiral in the price of North Sea Brent to an all-time high of €93.35 /barrel, is threatening to tip a mild recession into a deeper downturn. And because Europe buys about 20% of US-exports, and US Multi-Nationals earns about a quarter of their revenue from affiliates located in Europe, a deeper economic downturn on the eastern side of the Atlantic Ocean could derail the fledging US-economic recovery. Right now, the balance between global supply and demand is razor thin. Global oil production was 90.2-million barrels/day (bpd) in January, or about 700,000-bpd more than global demand. Saudi Arabia holds about 2.5-million bpd of idle production capacity to meet any sudden shortages, - the world’s only significant unused capacity. As US gasoline prices have become a top political issue in the run-up to the 2012 presidential elections, Senator Charles Schumer, asked secretary of state Hillary Clinton to urge Riyadh to increase its oil production to full capacity of 12.5-million bpd - an increase of 2.5-million barrels, in order to calm the oil markets. “These skyrocketing fuel prices are directly linked to the global energy market, particularly Iran’s recent efforts to manipulate oil prices and the worry of impacts on supply from an escalation of regional hostilities,” Schumer said in a letter. However, Emerging giants India and China are increasing their purchases of crude oil. China imported 23.4-million tons of crude oil last month, the third highest amount on record, and up +7.4% from a year earlier. India ramped up its purchases of crude oil to 17-million tons, up +18.6% from a year earlier. China wants to build its strategic reserve of crude oil, which presently stands at 102-million barrels – 21-days of imports. It’s scheduled to add another 168-million barrels of storage facilities by early 2013. If filled at a steady pace China would need to secure an additional 220,000 barrels per day, - not including any incremental increases in demand for economic growth or from falling domestic production. Indentifying the precise threshold of pain at which a Global “Oil Shock” wrecks havoc upon the fragile Euro-zone economy is tricky, but crude oil prices are quickly approaching the danger zone. Treading above the 2008 highs is certainly as warning sign of trouble looming on the horizon, especially if prices continue to march upwards. From a strictly technical point of view, the outlook for North Sea Brent is Bullish - climbing higher along an upward sloping trend-line. In the olden days, - before the collapse of Lehman Brothers and the financial crisis of 2008, central banks would’ve moved to tighten their monetary policies, and hike interest rates, in a concerted effort, in order to combat the inflationary impact of sharply higher oil prices. But in today’s world of “Quantitative Easing” (QE), a tighter money policy is no longer an option, especially with a US-presidential election, scheduled for Nov 6th. Nowadays, the Fed can only display its hawkish credentials, by fending off demands of the ruling politicians for a third round of QE. That still leaves the Fed looking timid and weak in the eyes of speculators.
Throughout the first three years of the Obama administration, the Fed has pursued the easiest money policy in the nation’s history. The Fed has locked the federal funds rate at 0.25%, and has vowed to maintain its Zero Interest Rate Policy (ZIRP) through the end of 2014. With its $400-billion “Operation Twist” scheme, the Fed has pushed the Treasury’s 10-year yield below 2%, a historic low. President Obama has exerted enormous pressure on the Fed to inflate the value of the US-stock market by Election Day, by printing vast quantities of money, in order to create the perception among the unsuspecting public that an economic recovery is underway. Obama and his spin artists are pointing to the rising stock market in campaign speeches and before audiences tuned into the MSM around the country, as a sign of optimism about the future, and a reason to vote for Obama in November. The problem of course, is that QE is only widening the gap between the rich and the poor in the United States. In fact, the top-10% of the wealthiest Americans own 80% of the stocks that are listed on the NYSE and Nasdaq. So in essence, most of the financial gains of the past three years have gone to the upper echelon of society. This policy known as “trickle down” economics, - is enriching the top-10% of the wealthiest Americans, and hopefully, they’ll spend more of their new found wealth. That in turn, would generate more demand for goods and services in the economy. This trickle down policy has damaging side effects though, which is why 60% of Americans think the US-economy is still in recession, according to a recent Rasmussen poll. For most Americans, the cost of living is rising faster than their wages. One major problem that’s now cropping up for the Obama re-election campaign, is that the price of North Sea Brent crude oil, - the benchmark for 2/3’s of the world’s oil markets, - appears to be tightly pegged to the direction of the Dow Jones Industrials. As the Fed inflates the value of the stock market, with its ultra-easy QE money policy, - one of a dangerous side effects is sharply higher oil prices. If the Fed is aiming to inflate the value of the Dow to the 14,000-level in advance of the upcoming presidential election, as is widely expected by equity traders, it also runs the risk of jettisoning oil prices to $150 /barrel. To read the rest of this article, click on the hyperlink located below: http://sirchartsalot.com/article.php?id=162 ### Gary Dorsch 321gold Ltd |
