Friday, October 17, 2008


Perhaps $70 per barrel of oil ($10 less than it was a year ago) is a truly scary thing for the rich oil producing countries. Perhaps (even though it just reached the high of $70 per barrel for the first time two years ago) this is so serious that they had to move up the meeting scheduled for mid-November by about 3 weeks to next Friday. Perhaps the thought of 3 extra weeks of lower oil prices due to a worldwide recession needed immediate attention.

But the fact of the matter is that the oil producers who are hurt most by 3 weeks of lower prices are the ones with the least influence within OPEC. The wealthy producers like Saudi Arabia and the UAE are "cushioned... by vast budget surpluses and foreign reserves...not all member states are facing such an acute squeeze. The UAE is still announcing big new construction projects in Abu Dhabi and Dubai. Saudi Arabia, easily the world's biggest oil producer and Opec's de facto leader, is comfortable with oil prices at a lower level." It is the weak members like Iran who need oil to stay near $100 per barrel. Link

So why the rush to meet? That is the question I am asking.

As I look around I see a potential opportunity for OPEC that goes far beyond 3 weeks of higher prices. I see that the world's banking system, currency systems, and credit systems falling apart. I see that big changes have happened in America in the last four weeks and that even bigger changes are right around the corner. For one thing, the American Presidential election is 3 weeks away. The final debate was on Wednesday, so there are no more obvious opportunities for major swings. Yesterday, Drudgereport featured a Gallup Poll with the two candidates in a statistical dead heat. Obama 49%, McCain 47%. 2% is within the margin of error. Today a second and similar poll was added.

So what if the big difference between the November meeting and the meeting next Friday is that the new meeting is happening BEFORE the election? What if the leading OPEC countries have calculated that it would be better to make a move now? For whatever reason?

And if so, what is that move? Just a drop in oil production? I doubt it.

On the surface, this OPEC meeting is what it is. What is much more interesting to me is what will be discussed in back rooms between select members. What move is one particular OPEC member planning that would require coordination with a few others?

These thoughts bring me back to Another. There were a few statements Another repeated many times. "Oil and gold will never flow in the same direction." "All paper will burn." ... and so on.

In all the media coverage of the current economic crisis over the past few months, the Middle East has been surprisingly absent. How many banks have failed in Dubai? How many Saudi hedge funds have gone under? How many bailouts have the Arabs had to endure?

Our entire western world is built and priced based upon full production of oil. Is it a coincidence that physical gold supply is so tight right now? Is the COMEX on the eve of a major default? Is "oil" aware of all of this?

I leave you with Another's very first post from October 5, 1997. In his first post, you would assume that he would summarize the principle (THOUGHTS!) he was trying to get across. I think he did. And to put OPEC's "emergency meeting" next Friday in the context of Another's first post raises a lot of question in my mind.
Date: Sun Oct 05 1997 21:29

Everyone knows where we have been. Let's see where we are going!

It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.

This line of thinking is very real in the world today but it is never discussed openly. You see oil flow is the key to gold flow. It is the movement of gold in the hidden background that has kept oil at these low prices. Not military might, not a strong US dollar, not political pressure, no it was real gold. In very large amounts. Oil is the only commodity in the world that was large enough forgold to hide in. Noone could make the South African / Asian connection when the question was asked, "how could LBMA do so many gold deals and not impact the price". That's because oil is being partially used to pay for gold! We are going to find out that the price of gold, in terms of real money ( oil ) has gone thru the roof over these last few years. People wondered how the physical gold market could be "cornered" when it's currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up.

(Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises.) Westerners should not be too upset with the CBs actions, they are buying you time!

So why has this played out this way? In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper.

The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. ( if one can only see value in paper currency terms then one cannot see value at all ) The problem for the CBs was that the third world has kept the gold market "bought up" by working thru South Africa! To avoid a spiking oil price the CBs first freed up the publics gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! And here we are today. In the early 1990s oil went to $30++ for reasons we all know. What isn't known is that it's price didn't drop that much. You see the trading medium changed. Oil went from $30++ to $19 + X amount of gold! Today it costs $19 + XXX amount of gold! Yes, gold has gone up and oil has stayed the same in most eyes.

Now all govts. don't get gold for oil, just a few. That's all it takes. For now! When everyone that has exchanged gold for paper finds out it's real price, in oil terms they will try to get it back. The great scramble that "Big Trader" understood may be very, very close.

Now my friends you know where we are at and with a little thought , where we are going.

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