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Posts Tagged ‘Oil’

By Aaron Task | Daily Ticker
Yahoo
Thu, Jun 9, 2011 8:02 AM EDT

There’s nothing new about pundits and authors warning about the thread posed by China’s rapid rise. In his upcoming book, Red Alert, Stephen Leeb tackles this hot-button issue from a slightly different viewpoint.

“Everything about China we have to pay attention to…but what really concerns me is their accumulation of all these commodities,” Leeb tells me in the accompanying video.

When you think of “commodities” you probably think about oil, gas, gold, corn, soybeans, and maybe copper or zinc. China has been on a global buying spree to gain access to many commodities, but Leeb’s focus is on so-called heavy rare earth materials, which China already owns in abundance.

“OPEC’s control of oil [is] dwarfed by China’s control of rare earths, which are probably just as vital as oil,” Leeb says. “It’s something we have to wake up to and wake up to very quickly.”

Back in 2005, the importance of rare earths became evident when Congress blocked China’s attempt to buy Molycorp’s Mountain Pass mine from Unocal, its owner at the time. China’s control of rare earth minerals made headlines again last September when the Communist nation imposed an unofficial ban on related exports to Japan.

But for the most part, rare earths are a backburner issue (at best) for most Americans, policymakers included. This is a big mistake, according to Leeb, who notes rare earth materials are used in high-tech weaponry and are “vital” to renewable energy production, notably wind turbines and hybrid cars.

“If you want to create a society reliant on renewable energy, you need a major transition that’s going to rely on critical commodities [like] heavy rare earths,” he says. “Silver too is totally vital.”

Yes, while most of us think of silver as an alternative currency, Leeb notes it has major industrial uses, both conventional and in the development of solar panels. As a result, he is extremely bullish on silver, for the long term. (See: Why Higher Oil Prices Are Good for Silver)

“I think silver is heading for $100 [and possibly] much, much higher numbers,” he says. “It could become so valuable that like gold in the Depression,” the government will confiscate individuals’ silver holdings.

For the moment, however, Leeb is far more concerned about what our government is failing to do to respond to China’s challenge.

“There’s no point in demonizing China for pursuing its own economic interests,” he writes in the preface to Red Alert. “But as a disciplined, fast-growing economic juggernaut, China poses a massive challenge to the United States and represents a major threat to our economic well-being. And we have only a limited window of time in which to respond to this challenge in any meaningful way.”

Failure to respond will result in “severe dislocations and an irreparable drop in our national income [and] our children will experience a decidedly lower standard of living,” he warns.

Read the entire article HERE.

by Charles Hugh Smith
May 20, 2011
Of Two Minds

What is the relative value of housing if we price it in ounces of gold?

My basic point of view is that nominal prices and broad terms such as deflation, inflation and growth should be viewed with extreme skepticism. The more useful approach is to examine the purchasing power of various assets and the the purchasing power of the income streams generated by those assets.

Put another way: to value housing, let’s compare the price of a house priced in loaves of bread, or ounces of gold, or barrels of oil to historical norms. Secondly, let’s look at the income stream generated by the median-priced home (that is, the median rent and net income after all expenses of maintaining and paying for the rental home are deducted) and ask how many loaves of bread, ounces of gold and barrels of oil that net income can buy.

Corrospondent Bart D. has charted some relative values for essentials in Australia, and I will share his fascinating charts next week. Inspired by his work, I have done some calculations on U.S. prices of bread, housing, oil, etc. as well.

Today let’s look at a chart of the Case-Shiller Housing Index priced in gold, courtesy of longtime correspondent Harun I.

Click Image for Larger View:

Harun’s comments are worth studying. Selling housing at the top and buying gold would have enabled the speculator to buy back his/her house at 1985 valuations. Alternatively, an equal investment in gold in 2005 would have served as a hedge to the huge loss of housing value as the bubble popped.

The Case-Shiller Index tracks the resale prices of homes, and is widely considered to be the most accurate metric of house prices. Median or average prices can be heavily skewed by a small number of outlier homes (very costly or very cheap), and they do not reflect the dynamics of the housing market as well as resale prices.

In broad terms, the ratio of the Case-Shiller Index and gold can be understood as “housing priced in gold.” We can see that the current ratio is around 110, which aligns almost perfectly with the second chart, which prices the median home in gold going back to 1970.

The calculation is easy: last report median home price of $166,000 divided by price of gold $1,500 per ounce = 110.

On Harun’s chart, we can see the ebb and flow of both housing and gold. A mini-bubble boosted housing prices dramatically in the late 1980s as the last of the Baby Boom bought homes. (The Baby Boom is typically considered the generation born between 1946 and 1964, but many dispute these dates.) Those born in 1960, for example, reached their peak home buying years of 25-30 in 1985-1990.

Gold declined modestly in price in that era, so the ratio moved smartly as housing jumped.

In the 1990s tech/dot-com stock bubble era, housing and gold were both flat, and this is reflected in the ratio’s meandering through much of the 1990s. Gold slipped in the late 1990s and housing began a new ascent as the dot-com capital gains and low interest rates began to move real estate markets.

As housing prices climbed from 1997 to 2001, gold went nowhere, so the ratio more than doubled. Put another way, housing greatly outperformed gold.

As the dot-com bubble burst, housing increased its attractiveness as a speculation and gold began its ascent. As a result, the ratio stayed flat in 2001-2004 as both gold and housing rose together. The housing bubble’s last sprint to the peak in 2006 puched the ratio up to 500: it took 500 ounces of gold in 2006 to “buy a share” of the Case-Shiller Housing Index.

In terms of the median price, it took almost 600 ounces of gold to buy the median priced house in 2005.

Then housing collapsed, and gold rocketed from $500/oz to $1,500/oz. As a result of housing declining by 40% and gold tripling, the ratio has plummeted by 80%, from 500 to just above 100.

How low can the ratio go? Some might look at the second chart and conclude that the previous bottom around 90, in 1980 when gold shot up to $800/oz, might well mark a bottom in the ratio.

Those who believe that 90 is the bottom would then sell their gold and buy housing at that point. Since the ratio is currently at 110, that point is still a ways off.

I am not so sure, as there is plentiful evidence that we are entering an unprecedented era. The Baby Boom numbers about 65 million, and the generation behind them (Gen X) is considerably smaller (45 million). That suggests there won’t be enough buyers to buy all the houses sold as Boomers downsize/retire.

As the U.S. economy grinds toward its event horizon, the generations behind the Boomers are less wealthy–their wages have stagnated, and they will inherit less wealth as assets in general fail to keep pace with inflation (i.e. loss of purchasing power).

If you examine the data in this list of median home prices, by state, in nominal and adjusted prices from the U.S. Census Bureau, you will note a gigantic jump in housing prices between 1970 and 1980. This coincides with the brutal inflation of that era and the first wave of Boomers buying homes.

In broad brush, this data suggests that housing has retraced back to around 1990 valuations when priced in constant/adjusted dollars. Priced in gold, it has retraced to the early 1980s, but I think it likely that the generational retrace could eventually fall all the way back to 1970 prices in constant dollars.

That suggests housing could fall quite a bit further in markets which retained the huge gains logged in the 1970-1980 period.

Meanwhile, at least one respected analyst has set a target for gold of $5,200. Louise Yamada called the turn in gold in 2000-2001, and set a target of $1,500/oz years ago. Thus her technical targets should not be dismissed out of hand.

Yamada has also called for a turn in interest rates/the bond market. The Federal Reserve has kept interest rates at historic lows for years, but cycles cannot be eliminated, they can only be extended. So once the 30-year cycle of falling rates reverses into an era of rising rates, housing will come under a pressure it hasn’t experienced in two generations: price compression from rising mortgage rates.

Simply put, the $300,000 home at 5% mortgage rates will decline to $150,000 if mortgage rates double to 10%. The average household can only afford so much per month for a mortgage. If rates double, then the sum of the mortgage has to fall by half to be affordable.

Yes, there are cash buyers, but if central banks around the world have to stop printing trillions in free money to rein in rising inflation, then the flood of free cash looking for a quick return will dry up very quickly.

We might also ask what happens to speculation in rising home prices if interest rates start rising. If cash buyers are counting on hefty returns from rental income, then we have to ask what might happen to rents.

Even if housing stays at current prices, if gold triples to $4,500 an ounce, then the housing-gold ratio would fall to the 30s: $160,000 divided by $4,500 = 35.

If housing declines another 25% to a median of $120,000, then it would take a mere 27 ounces of gold to buy a median-priced house.

There are certainly good arguments (usually based on replacement costs) that housing can’t possibly fall much lower, but oversupply and higher costs of money may well combine to push the speculative value of housing to new lows.

This is all speculation and guesswork, of course. All we can do is look at trends and study history for clues about what might happen. What will happen is unknown.

Read the entire article HERE.

By Financial Mentor David Campbell
05/04/11
HassleFreeCashFlowInvesting

The price of gas has gone up over 50% in the past twelve months.

While the mainstream media gives us conflicting opinions about whether we are experiencing inflation, common sense tells us our dollar is losing value at a rapid pace. Long time newsletter readers know I write about inflation a lot because it is the most important yet misunderstood economic concept in our society.

Since the dawn of government-issued currency, Federal governments have paid their bills by printing money rather than spending less than their revenues. Inflation is a popular form of taxation because most people are financially illiterate and don’t understand the shell game that is going on. Inflation gives the government virtually unlimited spending power. Virtually unlimited spending power gives the government virtually unlimited power. Once a government has virtually unlimited power, they are highly unlikely to reverse course.

The first people to receive new dollars printed by the US government are foreign governments who received dollars in exchange for service on the US debt and the US trade imbalance. The United States imports things with real intrinsic value, such as clothing and oil, and we export worthless paper backed by a good faith promise to pay from the American people. When foreign governments get a new shipment of US dollars, they have very few places to put them where they will retain value. Foreign governments know the US is sending them the ethical equivalent of counterfeit money and so foreign governments want to trade in their worthless scraps of US currency for something of intrinsic value as quickly as possible. Foreign governments cash in their fragile US Dollars primarily for two things – precious metals and oil. Precious metals have intrinsic value, but oil has much more utility. The world uses the US Dollar to denominate the price of oil. Because of the size of the oil market, its utility, and intrinsic value, oil is the natural commodity to soak up the surplus of bogus currency the US government is floating.

Technological breakthroughs such as hydraulic fracturing have increased the supply of extractable oil while the worldwide recession has reduced the demand for oil. Normally when you have reduced demand and increased supply, the price of something goes DOWN. What’s really going on is the price of gas is rising dramatically because of an excess of dollars, not an excess of demand. The rising price of gas should be a major leading indicator that the price of everything else (including wages and rents and real estate) will go up. Inflation does not affect the price of all things at the same time. Inflation has a trickle-down effect based on who gets the cash first, second, third, etc. The price of gas is leading the inflation charge because the US money supply has flooded foreign governments who get first choice of what resources they want to exchange their US dollars for and they’ve chosen oil.

Ironically, while the US government is printing money as a “hidden tax” to drive up the price of gas, the government is simultaneously lowering the tax rate on gasoline as a way of masking the impact of rising gas prices for consumers. Inflation is driving the price of international crude oil up while reduced gasoline taxes inside the US are influencing the price to go down. An important thing to remember is the reduction of gasoline taxes will have a limited impact on the price of gas while international market and inflationary forces will still be able to drive the price of gas to infinity and beyond (deference to Buzz Lightyear).

Don’t get depressed by this warning of inflation. If you are financially literate, you can use this information to take action and make a profit for your family. There is no way you could have prevented the terrible tsunami in Japan. However, if you had a year’s notice that the tsunami was coming, you would have done a great service to humanity by selling tsunami preparedness kits in the areas you knew would be affected. This is the same as inflation. Inflation is a powerfully devastating force that will wipe out tens of millions of families. Unfortunately we can’t stop it. If you know inflation is coming, you will do humanity a great service by preparing yourself and your family for it.

ACTION ITEM #1: Acquire rental property as close as possible to major job centers.

As the price of gas rises, people will pay a higher premium to live closer to their jobs. As the price of gas rises, your rents should follow suit.

ACTION ITEM #2: Own rental property in communities near centers of oil extraction.

The rising price of gas will stimulate economic growth in oil rich areas such as Dallas, Texas while depressing economic growth in other areas which must pay a higher cost to import their oil. As the price of gasoline rises, job creation and economic prosperity will contribute to rising rents and housing prices in oil rich areas.

ACTION ITEM #3: Own rental property in areas where job growth is fueling a massive demand of housing while increased construction costs are constraining the supply of new housing. Gasoline / oil is a major component of construction costs.

As the price of gas rises, the cost of construction will increase dramatically thus limiting the ability to add new supplies of affordable housing. Reduced supply combined with increased demand will drive up prices and rental rates of existing housing inventory. Again, Dallas, Texas is a great example.

ACTION ITEM #4: You could invest in oil related stocks or into the extraction of oil.

I am generally against owning publicly traded stocks because of the lack of control over your investment, the

Read the entire article HERE.

By Olga Belogolova
NationalJournal.com
Wednesday, March 30, 2011 | 9:10 a.m.

The Organization of the Petroleum Exporting Countries (OPEC) is set to make a record-breaking $1 trillion in export revenues this year if crude oil prices remain above $100 a barrel, an the International Energy Agency official told the Financial Times.

“It would be the first time in the history of OPEC that oil revenues have reached a trillion dollars,” Chief IAEA Economist Fatih Birol told the Financial Times. “It’s mainly because of higher prices and higher production.”

The possibility of a record-breaking year comes as continued unrest in the Middle East and North Africa, engagement in Libya, and signs of an economic recovery renew debate among policymakers over how to deal with rising global oil prices and their ties to national security.

President Obama will weigh in on the issue today when he speaks about his new four-part “Plan for America’s Energy Security” at Georgetown University. And Republicans and oil state Democrats have argued for expanded offshore oil and gas drilling in light of rising prices and foreign oil dependence.

On Tuesday, House Natural Resources Committee Chairman Doc Hastings, R-Wash., introduced legislation that expands drilling and the Interior Department said in a report this month that the oil industry isn’t using a large portion of their drilling leases.

The report, along with other energy security concerns, will likely be discussed at Hastings’ Natural Resources Committee hearing this morning, where Bureau of Energy Management, Regulation and Enforcement (BOEMRE) director Michael Bromwich is scheduled to testify on his FY 2012 budget.

Read the entire article HERE.

Published: Today
Associated Press

WASHINGTON (AP) – Higher energy costs and the steepest rise in food prices in nearly four decades drove wholesale prices up last month by the most in nearly two years. Excluding those categories, inflation was tame.

The Producer Price Index rose a seasonally adjusted 1.6 percent in February, the Labor Department said Wednesday. That’s double the 0.8 percent rise from the previous month. Outside of food and energy costs, the core index ticked up 0.2 percent, less than January’s 0.5 percent rise.

Food prices soared 3.9 percent last month, the biggest gain since November 1974. Most of that increase was due to a sharp rise in vegetable costs, which increased nearly 50 percent. That was the most in almost a year. Meat and dairy products also rose.

Energy prices rose 3.3 percent last month, led by a 3.7 percent increase in gasoline costs.

David Resler, an economist at Nomura Securities, said the jump in prices is likely temporary, echoing remarks made by the Federal Reserve on Tuesday. Much of the increase in food prices was due to winter freezes in Florida, Texas and other agricultural areas, Resler said. Turmoil in the Middle East is a major reason that motorists are facing higher gas prices.

“Both food and gasoline prices are going to stop rising so rapidly,” Resler said.

But John Ryding, an economist at RDQ Economics, disagreed, noting that consumers will feel the impact for some time.

“We do not buy the Fed’s reassurance that these pressures will be temporary and we believe the public, seeing these strong increases in food and energy … will not be marking back down their inflation expectations,” Ryding said.

Gas prices spiked in February and are even higher now. The national average price was $3.56 a gallon Tuesday, up 43 cents, or 13.7 percent, from a month earlier, according to the AAA’s Daily Fuel Gauge. Rising demand for oil in fast-growing emerging economies such as China and India has pushed up prices in recent months. Unrest in Libya, Egypt and other Middle Eastern countries has also sent prices higher.

But economists expect the earthquake in Japan to lower oil prices for the next month or two, which should temper increases in wholesale prices in coming months. Japan is a big oil consumer, and its economy will suffer in the aftermath of the quake. But as the country begins to rebuild later this year, the cost of oil and other raw materials, such as steel and cement, could rise.

Oil prices fell sharply Tuesday as fears about Japan’s nuclear crisis intensified. Oil dropped $4.01, or 4 percent, to settle at $97.18 per barrel on the New York Mercantile Exchange.

Prices rose 1 percent for apparel, the most in 21 years. Costs also increased for cars, jewelry, and consumer plastics.

There was little sign of inflationary pressures outside of food and energy. Core prices have increased 1.8 percent in the past 12 months.

Separately, the Commerce Department said Wednesday that home construction plunged to a seasonally adjusted 479,000 homes last month, down 22.5 percent from the previous month. It was lowest level since April 2009, and the second-lowest on records dating back more than a half-century.

The building pace is far below the 1.2 million units a year that economists consider healthy.

Read the entire article HERE.

By Rudy Ruitenberg
Bloomberg
Mar 3, 2011 5:22 AM PT

Global food prices rose to a record in February and grain costs may continue to rise in the next several months, with only rice keeping the world from a repeat of the crisis three years ago, the United Nations said.

An index of 55 food commodities rose 2.2 percent to 236 points from 230.7 in January, the eighth consecutive gain, the UN’s Food and Agriculture Organization said today. Wheat rose as much as 58 percent on the Chicago Board of Trade in the past 12 months, corn gained 87 percent and rice added 6.5 percent.

“I’ve never loved rice more than now,” Abdolreza Abbassian, a senior economist at the FAO in Rome, said by phone. The grain is the staple food of more than half of the world population, according to the International Rice Research Institute. “Probably rice is the commodity which is separating us from a food crisis,” Abbassian said.

Rising food costs contributed to riots across North Africa and the Middle East in the last several months that toppled leaders in Egypt and Tunisia. Prices surged as bad weather ruined crops from Canada to Australia and Russia banned grain exports after its worst drought in a half-century.

$100-a-Barrel Oil

Turmoil in oil-producing countries including Libya has pushed crude above $100 a barrel, which may drive corn and wheat prices even higher, Abbassian said. Higher crude prices make biofuels produced from crops more competitive while raising the cost of tractor fuel and fertilizer for farmers.

“As long as oil prices remain high, it would start putting heavy pressure on the market, first through corn and then spilling over to other markets,” Abbassian said. “There’s no sign of rationing for cereals. I don’t see a correction.”

Global food prices probably will rise in the first half of this century because of an expanding population and higher incomes, slower crop-yield growth and the effect of climate change, Ross Garnaut, the Australian government’s climate-change adviser, said yesterday.

“The hike in food prices is deeply worrying,” Thierry Kesteloot, a food-policy adviser at Oxford, England-based hunger-relief charity Oxfam, said in an e-mailed statement. “Millions more people are sliding into poverty as they struggle to afford basic food supplies, and more and more are at risk of going hungry.”

Forced Into Poverty

Even without a crisis, the number of undernourished people in the world will rise this year from 925 million in 2010 as food costs gain, Abbassian said. He gave no estimate. The World Bank said last month 44 million people have been forced into extreme poverty since June by food inflation.

Food output will have to climb by 70 percent between 2010 and 2050 as the world population swells to 9 billion and rising incomes boost meat and dairy consumption, the FAO forecasts. Producing 1 kilogram (2.2 pounds) of pig meat can take 3.5 kilograms of feed, U.S. Department of Agriculture data shows.

“You now need a very good 2011 crop, and if we don’t get that, I’m not very optimistic about 2011-12,” Abbassian said. “There hasn’t been a food crisis per se, anything comparable to 2008. With stocks being drawn down, for 2011-12 we’ll have to be far more cautious.”

The UN’s food-price index rose 34 percent from 175.9 points a year earlier, with all five food groups advancing.

Dairy Prices

The dairy index climbed to 230 points in February from 221.3 in January. Milk futures traded in Chicago jumped 15 percent last month following a 26 percent surge in January, the biggest gain since March 2004.

The FAO’s sugar-price index slipped to 418.2 points from a record 420.2 in the previous month. Raw-sugar prices climbed 37 percent in New York in the past year.

The gauge for meat rose to 169.5 points from 166.2. Meat is a “significant” part of the diet in developed countries, which may see more food inflation than in 2007-08, according to Ken Ash, trade and agriculture director at the OECD.

A gauge of cooking oils and fats gained to 279.3 points from 277.7, the FAO said. Its cereal-price index climbed to 253.8 points from 244.8 in January, the highest level since July 2008, the report showed.

World grain production in 2010-11 is forecast to drop 1.1 percent to 2.24 billion metric tons, the UN agency said, compared with December’s outlook for a 2.23 billion-ton crop. It estimated cereal usage at 2.28 billion tons, exceeding production.

Wheat Crop

The FAO cut its projection for ending stockpiles to 479 million tons from December’s 525 million tons following an adjustment of historical Chinese corn inventories.

The global wheat harvest will come to 654 million tons, compared with a previous outlook of 653 million tons, the FAO said. Production of coarse grains including corn and barley will be 1.12 billion tons, and milled-rice output will be 466 million tons, it said.

Read the entire article HERE.

February 28, 2011
National Inflation Association (NIA)

The National Inflation Association (NIA) announced in its November 5th, 2010, food price projection report that food inflation would take over as America’s biggest crisis in calendar year 2011, surpassing the mortgage crisis and high unemployment, which were the top economic concerns of Americans in 2010. NIA’s food price projection report received worldwide media attention including being featured by Glenn Beck on the FOX News Network. NIA’s prediction about food inflation was strongly reiterated by NIA’s President Gerard Adams on November 12th when he was a guest on the FOX Business Network. NIA then included this prediction as one of its ‘Top 10 Predictions for 2011′ released on January 4th, 2011. We are less than two months into 2011 and already massive food inflation is beginning to affect American citizens in a major way, but not the way most people expected.

The Federal Reserve has held interest rates at near zero percent for over two years, which has flooded the world with trillions of dollars in excess liquidity. The world first saw our rapidly accelerating monetary inflation through rapidly rising gold prices. Gold is the best gauge of inflation and predictor of future inflation. It comes as no surprise to NIA members that gold prices were the first to see major gains as a result of massive inflation.

In late-2009 with gold prices soaring through the roof, the mainstream media wasn’t smart enough to figure out that inflation was the cause of rising gold prices. In fact, all of the economists that the mainstream media follows were forecasting deflation. On December 10th, 2009, with gold at $1,100 per ounce, Nouriel Roubini, professor of economics at New York University’s Stern School of Business said, “all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense”. Roubini went on to say ,”I don’t believe in gold” and “gold can go up for only two reasons.” Roubini pointed to inflation as being one of those reasons, but said, “we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment above 10 percent in all the advanced economies.”

NIA recognized from the very beginning that despite adverse signs from the bond market, gold and U.S. stock prices were rising solely due to inflation, and there was no economic recovery. In fact, in an article released on December 28th, 2009, NIA wrote, “In 2009, we saw the monetary inflation created by the Federal Reserve’s zero percent interest rates drive up the prices of U.S. stocks, without dramatically increasing the prices of U.S. consumer goods. We consider 2009 to have been a brief period of euphoria, before a rapid increase in the prices of food, energy, clothes and other necessities Americans need to live and survive.”

NIA first warned about food inflation in our October 30th, 2009, article entitled, ‘U.S. Inflation to Appear Next in Food and Agriculture’. In this article, NIA said, “Prices are rising all around us, yet agricultural commodities have for the most part been left behind and remain at historically depressed levels. Fundamentals for agriculture are improving on a daily basis. A worldwide shortage of farmers combined with food inventories falling to record lows is setting up the perfect storm for an explosion in agriculture prices.” From the release of this article on October 30th, 2009, to their highs this month, we have seen an explosion in agriculture futures with wheat gaining 52%, cotton gaining 177%, corn gaining 72%, soybeans gaining 49%, coffee gaining 86%, orange juice gaining 37%, and sugar gaining 86%.

Luckily for the U.S., because of the dollar’s status as the world’s reserve currency, the U.S. has been able to export its food inflation to the rest of the world. America’s food inflation crisis is so far manifesting itself in Arab nations. It started out early last month with citizens in Algeria marching to the capital chanting, “Bring us Sugar!” It then spread to riots in Tunisia, which saw 14 civilian deaths when protesters clashed with police. Afterwards came the Egyptian Revolution, which saw 365 civilian deaths and thousands more injured, leading up to the resignation of Egyptian President Hosni Mubarak on February 11th. In recent days, the civil revolt has reached Libya, the third largest oil producer in Africa and holder of Africa’s largest oil reserves.

Although the U.S. is largely self-sufficient when it comes to the production of food, oil is a very important commodity used in agriculture production and the U.S. needs to import most of its oil. With oil prices soaring through the roof, Arab nations are getting their revenge on the U.S. for the food inflation they are suffering from. Oil is the second largest expense that affects retail prices of food in our supermarkets after the cost of agricultural commodities. The reason a 50% increase or more in nearly all agricultural commodities hasn’t caused food prices in U.S. supermarkets to rise by 50% or more in recent months, is because Americans have been blessed with cheap oil. The surging price of oil means that America’s food inflation crisis is now imminent.

All American citizens need to be ready for nationwide civil unrest, rioting, looting, and protesting later this year, even worse than what is occurring in Arab nations. The Arab world will survive this crisis because they have oil reserves that they can export to Asian countries when the U.S. can no longer afford to import oil. However, America’s survival is dependent on the world’s confidence in a piece of paper that has no intrinsic value and is being debased as fast as humanly possible.

The Federal Reserve is 100% responsible for the world’s political turmoil and upheaval of governments. As NIA continues to educate the world about the Federal Reserve’s destructive monetary policies, we are witnessing surging anger over the Federal Reserve’s ability and willingness to steal from the incomes and savings of the American middle class by printing money and transferring this wealth through cheap and easy credit to bankers on Wall Street who produce nothing tangible for the U.S. economy. At the very least, NIA believes this anger will lead to large “End the Fed” protests later this year, which NIA first predicted would occur last year (we overestimated America’s eagerness to learn the truth about the U.S. economy and inflation). Worst case scenario, by the end of 2011, we will see the world rush to dump their U.S. dollars and an outbreak of hyperinflation.

Our good friend Gerald Celente first forecast the current North African crisis in an article he wrote in his autumn ‘Trends Journal’ entitled ‘Off With Their Heads 2.0′. In fact, Celente wrote another article just days before the riots in Tunisia entitled ‘Youth of the World Unite’, which accurately predicted with precise details the deadly riots we now are seeing in Arab nations. Celente will be a guest in NIA’s upcoming must see documentary about the U.S. college bubble that is getting ready to collapse.

As accurate as Celente was about the North African crisis, we believe even he was surprised by just how fast the upheaval took place. Absolutely nobody in the mainstream media saw this crisis coming at any time during the recent weeks and months leading up to it.

Read the entire article HERE.

By Gary Strauss
USA TODAY

If political unrest in Libya spreads to other oil-rich countries and the ensuing chaos disrupts crude oil production, gas prices could hit $5 a gallon by peak summer driving season, industry analysts say.

Oil prices soared to the highest level in more than two years as violence spread in Libya and Moammar Gadhafi’s grip weakened. Only a small amount of Libya’s oil production appeared to have been affected, though analysts fear revolts will spread to OPEC heavyweights like Iran.

Benchmark West Texas Intermediate for April delivery jumped $4.59, or 5% to $94.30 per barrel on the New York Mercantile Exchange. The last time oil traded at that level was Oct. 2, 2008. The April contract traded as high as $98.48 per barrel.

“If this thing escalates and there’s a good chance that there’d be a shift in supplies, $5 gas isn’t out of the question,” says Darin Newsom, senior analyst at energy tracker DTN.

The average price of regular gasoline is expected to rise to $3.25 within a few days, says Tom Kloza, chief analyst at the Oil Price Information Service. That’s 2.5% above Tuesday’s $3.17 national average.

Spanish oil company Repsol-YPF said Tuesday that it suspended operations in Libya, which produced 34,777 barrels of oil equivalent per day last year. Other oil companies, including Italy’s Eni, Royal Dutch Shell, U.K.-based BP and Germany’s Wintershall, started pulling out employees. Meanwhile, key Libyan officials resigned and air force pilots defected amid a bloody crackdown on the protests.

Libya holds the most oil reserves in Africa and is the world’s 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration.

Any production losses out of Libya could be quickly absorbed by other countries like Saudi Arabia, which can ramp up production as much as another five million barrels per day. The main concern stalking markets is that revolts in the Middle East and North Africa will spread to OPEC heavyweights, particularly Iran, the group’s second-largest producer.

Read the entire article HERE.

Pablo Gorondi
Associated Press
Wednesday February 23, 2011, 8:53 am EST

Oil prices rose to fresh two-year highs around $96 a barrel Wednesday amid concerns that a violent power struggle in Libya could disrupt supplies, with experts warning the next weeks and months would prove highly volatile.

If the chaos spreads to other bigger energy producers in the region, such as Iran or Saudi Arabia, price fluctuations could became as sharp as those in the 1970s, when an OPEC embargo caused gasoline shortages in the U.S., analysts warned.

By early afternoon in Europe, benchmark crude for April delivery was up 74 cents at $96.16 a barrel — the highest since October 2008 — in electronic trading on the New York Mercantile Exchange. The contract jumped $5.71, or 6.4 percent, to settle at $95.42 on Tuesday.

In London, Brent crude for April delivery gained $1.65 to $107.43 a barrel on the ICE Futures exchange.

Libyan leader Moammar Gadhafi on Tuesday called on supporters to attack anti-government demonstrators as protesters backed by defecting army units claimed control over almost the entire eastern half of the country, including several oil-producing areas.

Nearly 300 people have been killed so far in the rebellion, according to a partial count by the New York-based Human Rights Watch.

Libya holds the most oil reserves in Africa and is the world’s 15th-largest crude exporter at 1.2 million barrels per day, according to the Energy Information Administration.

“In total, some 300,000 barrels per day is now offline, but … the numbers could rise as we still do not have a clear idea how much oil is being impacted by striking Libyan workers deep inside the country,” said Edward Meir, senior commodity analyst at MF Global in New York.

As the Libyan government cracked down on protesters, Western oil companies including Eni and Repsol-YPF temporarily suspended oil production in the country. BP has started evacuating workers.

“The protests in Libya are the first to meaningfully put oil supplies at risk,” Goldman Sachs said in a report.

Goldman, which is forecasting benchmark crude to rise to $103 within 12 months, said recent violent protests in Bahrain show that wealthy oil-rich Gulf states are also vulnerable to political upheaval.

“These recent developments in Libya and Bahrain increase the risks of major supply disruptions,” it said.

The crisis in the Middle East and North Africa began in January with the overthrow of Tunisia ruler Ben Ali, spread to Egypt and the resignation of President Hosni Mubarak and has sparked protests in Yemen, Bahrain, Iran, Algeria, Morocco and Jordan.

Traders are watching closely protests in Iran, OPEC’s second largest producer, and for signs of any unrest in Saudi Arabia, the world’s biggest crude exporter. Analysts fear that further oil price spikes could fuel inflation, undermining consumer spending and global economic growth.

“Saudi Arabia, itself an authoritarian state, now finds itself surrounded by countries in the throes of revolution,” energy analyst Richard Soultanian of NUS Consulting said.

“Should the current situation continue to deteriorate, it has the potential to not only roil the energy markets but also upend the nascent and accelerated recoveries in developed and emerging markets.”

Some observers expect a return to the sharp fluctuations of oil prices seen in the 1970s.

“Today’s situation is reminiscent of the 1970s,” said Anthony Michael Sabino, a professor at St. John’s University’s college of business. “The price of oil will now jump in direct relation to one of its oldest barometers — political tension in the Middle East.”

“Expect nothing but a roller coaster ride for a few weeks, if not months.”

Read the entire article HERE.

By Stephen Kirkland
Bloomberg
Feb 21, 2011 7:44 AM PT

Oil rose to a two-year high and gold rallied for a sixth day surpassing $1,400 an ounce, as tension in the Middle East escalated. Stocks fell for the most in a month as Eni SpA led companies with operations in Libya lower.

Brent crude gained as much as 2.5 percent, trading up 2.4 percent at 10:40 a.m. in New York. Gold climbed 1.1 percent and silver added 3.4 percent. The Stoxx Europe 600 Index declined 1.3 percent, with Eni sinking the most since July 2009 on a closing basis. Standard & Poor’s 500 Index futures lost 0.8 percent. Bahrain’s 2020 bond yield increased for a 10th day after S&P cut its debt rating. The New Zealand dollar strengthened against its major peers. U.S. markets were closed for the Presidents’ Day holiday.

Libyan security forces attacked anti-government protesters as demonstrations spread across the Middle East and North Africa, a region that accounts for 36 percent of global crude output. Chinese authorities blocked foreign news reports on protests across the country to stamp out any movement toward pro-democracy revolts.

“You’ve got to be very concerned, particularly because it can affect the oil price, and if you have the oil price spike up another $20, $30, you could reenter a global recession,” Bill Belchere, global chief economist at Mirae Asset Securities, said in a Bloomberg Television interview in Hong Kong.

Brent crude rose to as high as $105.08 in London. West Texas Intermediate oil for April delivery jumped 4.2 percent to $93.49 a barrel in New York. Gold climbed to as high as $1,404.22 an ounce, and last traded at $1,404.15. Silver rose to a 30-year high of $33.7625 an ounce.

Libya Ties

Eni, the largest foreign oil and gas producer in Libya, lost 5.3 percent, while OMV AG, central Europe’s biggest oil company, which has been in Libya since 1975, slid 5.1 percent. Tekfen Holding AS tumbled 8.4 percent as the Turkish builder suspended work on a Libyan project, saying its priority now is the safe evacuation of 1,197 non-Libyan employees.

Merck KGaA gained 3.7 percent as earnings beat forecasts. Alpha Bank SA rose 5 percent as the shares resumed trading following a takeover bid from National Bank of Greece SA.

The MSCI Emerging Markets Index slid 0.1 percent. Benchmark indexes in Russia and South Africa rose more than 1 percent while gauges in Turkey, Dubai and Morocco sank at least 1.3 percent. Brazil’s Bovespa fell 1 percent.
Facing Civil War

Muammar Qaddafi’s son called on protesters to engage in dialogue or face a civil war, as violence escalated amid reports protesters seized control of Libya’s second-biggest city. Violence has flared in Yemen, Djibouti, Iran and Bahrain as governments sought to crack down on demands for change.

Bahrain’s dollar bond due 2020 fell as S&P cut its rating and signaled further downgrades were possible, saying it expected protests to persist. The 10-year bond yield rose 16 basis points to 6.79 percent, increasing 89 basis points since Feb. 7. The cost of insuring the country’s debt against default using credit default swaps rose seven basis points to 312, according to CMA.

Default swaps on Dubai jumped 11 basis points to 448, contracts on Qatar increased seven basis points to 113, and those for Saudi Arabia climbed five basis points to 144, according to CMA.

India’s Sensitive Index climbed 1.3 percent on gains by oil shares and Wipro Ltd.’s biggest rally since November after Credit Suisse Group AG recommended the software services provider. Vietnam’s VN Index slumped 4 percent, the most since November 2009, after the government said it will raise electricity prices by a record 15.3 percent.

Read the entire article HERE.