One advantage of an interview with one of the best specialists in
finance and economics is that they warn you about the important factors
that you probably did not attach much importance. So last week was my
experience with Chris Martenson in Madrid (the interview will be
published on the website GoldMoney in the coming weeks). He reminds us
of the importance of availability and price of oil for our economic
future.
The main argument is that without oil in our lives can happen very
much. It is necessary for resource extraction, agriculture,
manufacturing, transportation and distribution of goods. World
consumption is increasing, but production has declined. Oil-exporting
countries to consume more, leaving less for those who have it do not
exist. The cost of production increases dramatically: whereas fifty
years ago to produce hundreds of barrels of resource required per
barrel, now we move to new fields, where the norm is the cost of one
barrel to extract three. We are faced with the inevitable failure
between the growth of world consumption and lower levels of net exports.
We are familiar with this story, but most of us underestimate its
value, so it is worth recalling. The chart below (constructed on the
basis of the Statistical Review of World Energy BP for 2011) summarized
the problem.
The black line on the chart – it’s a five-year rolling average of the
difference between annual production and consumption levels,
represented as black bars. The last time the excess production was
registered in 1981, thirty years ago and since then the world drained
strategic reserves and reserves to meet consumer demand, and now this
trend is increasing. Blue bars represented the balance in Europe, who
lives at the expense of North Sea oil, which is now ending. The red
columns – North America and Mexico, where in 1984 there was a decrease
of production. But most frightening is the lack in the Asia-Pacific
region, presented in the graph as yellow bars, which has increased
significantly over the past twenty years.
The graph shows clearly an imbalance between production and
consumption, which can no longer be maintained. The world was caught
between the rigid demand – because oil is vital to our existence – and
the reduction of net production. This explains the change in oil prices,
which is represented by the blue line on the second graph (I will
comment on the price movement of gold in a moment).
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The correlation of the price of oil and gold in the long run.
There were three phases: the first, when the Organization of
Petroleum Exporting Countries raised the price of oil, the second, when
they were put into operation more expensive deposits do not belong to
OPEC, which limited the rise in prices and, finally, the third, when
prices rose in seven time at the moment. It was from a third trend until
there is no obvious way out. The schedule is built on a logarithmic
scale, that is, since 1998 prices have risen exponentially.
The result of the further deterioration of relations between
production and consumption can only be a significant increase in
prices. If you believe the statistics of BP, which shows the supply
shortage of the vital commodity in the world for over thirty years, the
logical consequence of this is the explosive growth rates. And at
quantitative easing in the markets will have additional money to pay for
goods at a higher price, and then it is better not to think about the
consequences of all this for the world price inflation. Based on these
data we can confirm the analysis of Chris Mårtensson.
Life during the energy crisis will require radical changes in our
lifestyle – for the worse. Better financial protection in this case is
the physical gold, which tracked the oil price well over the years, as
the second graph, and may continue in the same spirit. Ultimately, the
combination of the rapid increase in money supply in the history of
civilization, and rising oil prices – inflation is a disaster in the
making.
Gold News
