by Charles Goyette | March 9, 2012 11:00 am
Oil. It’s the world’s most important, actively traded commodity. It is absolutely indispensable to modern civilization. Everything economic is conditioned by oil.
But the governing classes display a degree of imbecility about oil that is simply stupefying.
They have done practically everything in their power to drive the price of oil sky high, successfully sending prices at the pump near $4 per gallon and emptying your wallet.
“Inkjet” Bernanke has presided over a breathtaking episode of money printing. One measure of money supply, M2, has jumped 10% in the past year, while M1 has surged 20%. The virtual explosion in the U.S. money supply has rendered the purchasing power of the dollar ever weaker.
And since oil is priced in U.S. dollars, the result is that as the greenback loses value… crude oil gets more expensive.
And then, there’s the constant saber rattling in the oil-rich Mideast, which has placed a fear premium on the price of oil. The chest beating and the pounding of war drums echoes around the world, as the U.S. and Europe have stepped up sanctions on Iran. But calling the American and European restrictions on Iran “sanctions” soft pedals what is perilously like an act of war: A blockade.
Between these two policies, the state has engineered higher oil prices.
But don’t look for the governing classes to fess up. As the distressed American public shouts “foul” with gas prices reaching levels last seen at the beginning of the recession, Washington is searching for a whipping boy.
And boy did they find one.
House Minority Leader Nancy Pelosi has blamed oil speculators for rising oil prices, stating…
Independent reports confirm that speculators are driving up the cost of oil, hurting consumers and potentially damaging the economic recovery. Wall Street profiteering, not oil shortages, is the cause of the price spike.
But if speculators can make prices higher, where were they in 2008 when oil fell from $147 to $31?
Pelosi should not be allowed to get away with looking beyond Washington for the real culprit. If she couldn’t find the reason for high gas prices in the devaluation of the dollar and the obstruction of the oil markets, surely she could have found someone to blame by taking a quick stroll down the capitol mall to the Department of Energy building.
There she’ll find Energy Secretary Steven Chu, who was very explicit even before he took office. “Somehow,” he said, “we have to figure out how to boost the price of gasoline to the levels in Europe.”
Here’s the Truth: Whether it’s excessive money printing, or a potential war with Iran, or even Pelosi’s speculators, oil prices are surging. Oil per barrel could easily shoot up to $200, $300, or even higher.
While it is true that some oil companies like ExxonMobil (NYSE:XOM), Royal Dutch Shell (NYSE:RDS.A) and Chevron (NYSE:CVX) will see increased earnings with spiking oil prices, their share prices can be hammered by nervous investors in the face of a crisis. It’s a systemic problem that affects the entire sector, as people naturally seek to avoid risk in troubled sectors.
Remember BP (NYSE:BP) and the Deepwater Horizon explosion in 2010? Its share price was cut in half. And other big-name oil companies’ shares quickly followed suit, with Schlumberger (NYSE:SLB) plunging 29%, Chevron dropping 18% and ExxonMobil sliding 18%.
Today, we’re living in an environment rich with opportunities for provocations and hair trigger reactions. A misunderstanding or foolish incident in the shipping lanes can quickly escalate into the next big oil crisis with tragic consequences.
All companies tied to the energy sector could be impacted. Even major shipping companies can be affected, as ships and crews sit idle waiting for things to clear up, squeezed by higher shipping insurance premiums and even higher wages in hostile areas.
That’s why, despite the mouth-watering gains in oil prices, you must limit your exposure to institutional and government risk by avoiding big-name oil stocks with direct ties to foreign hotbeds, like the Middle East, Asia and Africa.
Charles Goyette is editor of Freedom & Prosperity Letter, a monthly political and financial newsletter. His new report, “7 Deadly Threats that Could Destroy Your Wealth in 2012,” delves deeper into why an outbreak of war and surging oil prices could be detrimental to not just your wealth but also your family and finances in 2012. Access your FREE copy here.
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