Oil Crisis II—now playing at your favorite oil-exporting country!
Today's Financial News - Posted October 22, 2008
Crude oil’s drop below $70 today not only spells trouble for commodities investors and funds, but for most oil-exporting countries!
by J. Christoph Amberger
Baltimore — (TFN): OPEC may be praying for a cold winter. Maybe it should prepare for one: Falling oil prices are now meeting up with the respective governments’ budget-grade, “conservative” price levels. With huge revenues surpluses generated by $140 oil gone with the wind, the market is now pricing oil again right at the threshold of pain: Have oil drop by another five bucks, and Qatar, Saudi Arabia, Russia and Venezuela will find themselves in the position of Baltimore City, facing budget shortfalls and large-scale cuts in government spending.
Or, alternatively… the need to borrow.
Oil prices fell below $68 a barrel today after the U.S. government reported big increases in U.S. fuel supplies. Chalk that up to to drying up demand thanks to the economic downturn.
The Energy Information Administration reported that crude inventories jumped by 3.2 million barrels last week, as gasoline inventories rose by 2.7 million barrels.
But falling oil prices aren’t just bad news for oil exporters. The historic correllation between oil and gold prices is now shaping up to be a major headache for those who thought gold would see them through the Twilight of the Markets unscathed. Some time over the last five years, the oil-to-gold ratio clandestinely lowered itself from 15 barrels of oil for an ounce of gold to 7.5 barrels.
The math is quite chilling: At $68 per barrel, the price of gold would add up to just $510 per ounce! So far, panic purchases of bullion and coin have buffered the decline to a drop toward $750 today… which means gold would have another $240 per ounce to fall. (Given the price moves of the last few days, such drop in value could be achieved in about 10 trading days…)
But despite OPEC’s best effort to reduce production, oil may have further to fall… maybe another 20 bucks per barrel before you sink reluctant teeth into Aunt Edna’s Christmas fruitcake. Which means the downside for gold is expanding every day the downturn continues.
I’ve been nagging you for weeks that you should use this powerful downward trend to make some money, both on the inevitable downside of gold… but also on its remaining and undeniable potential of crisis-driven upward breakouts. We’ve made it as easy to apply this Ultimate Gold Hedge strategy as clicking on this link!
Next Article: The Virtuous Cycle Revisited
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