Crude Oil Price Cycle – The Stealthy Economy Killer

June 12, 2018
David Bennett

Insights into Energy Sector Dynamics and Strategies

"Crude Oil Price Cycle: An Economy Killer," presented by the Financial Policy Council, meticulously explores the cyclical nature of crude oil prices and its profound impacts on global economies. The document dissects the volatile swings in oil prices and their correlation with economic recessions, inflation rates, and geopolitical tensions. It highlights the vulnerability of oil-dependent economies and the ripple effects across various sectors including transportation, manufacturing, and consumer goods. The council advocates for diversified energy policies and investments in alternative energy sources to mitigate the adverse effects of oil price volatility on economic stability. This comprehensive analysis serves as a call to policymakers to prioritize energy security and economic diversification to shield against future oil price shocks.

In this blog I want to give you a look into a very dangerous, stealthy and disruptive cycle, which is the deep tap root cause of the US 2008 housing crisis. The crude oil price cycle was followed in lock step by the 2008 financial and economic collapse of the U.S. and the world.

In 1992 I started a project that I completed in late 2012 and tested in 2013: Geometric Percent Fractals. However, in 1995, while working on this project I made an accidental discovery which resulted in a side project of several hundred hours to document the “spot cash” crude oil prices back to 1902. I hand assimilated monthly charts of oil prices up to 1968-69, then created digital charts up to 1996. This resulted in a staggering revelation.

THE CRUCIAL AND DANGEROUS 30-YEAR PATTERN OF CRUDE OIL PRICES

From 1910-20 there was a gentle price jump, then the price was relatively steady from 1920-40. From 1940 to 1950 the price of crude oil spiked by 350% to just under $4.00.

From 1950-1970 the price again held steady between $3.50-4.00 and then from 1970-1980 the price spiked again by approximately 350%, to just under $30.00.

From 1980-2000 prices held steady between $10.00-20.00 (only exception was the Gulf War scare spike), and then again, the price spiked to $80 by 2006. By 2007, crude oil prices were just under $100.00.

The $100 crude oil price began to cause severe stress in our economy, specifically on all transportation-related industries, and the monthly housing market was declining. I was holding my breath. I was thinking of all the real possibilities which were mostly catastrophic.

With the economy in full decline, the crude oil price remained steady in the last quarter of 2007; however, by 2008 crude oil spiked again for almost 6 months straight, peaking at $147.3. The metastasizing effect of the crude oil price was dragging the CRB index up lock-step with it. Crude oil prices touch all items in our economy from birth to death – all our world’s consumables. Why did the crude oil price spike with such intent while the world’s economics were tumbling in downward spiral?

It is because it was absorbing the devaluation of the USD. This is specifically what makes the crude oil cycle so unmerciful! It is not responding to normal supply-demand factors. Also, it will not respond to any Federal Reserve action, period.

Crude oil is the strongest hard asset currently on the globe, with gold following a very close second. It appears the devaluation of USD is not a smooth transition. As crude oil absorbs the USD’s devaluation built up over the previous 2 decades, it manifests itself as a quick and violent event. After crude oil had satisfied its target and collapsed during the last two quarters of 2008, gold immediately spiked up from $850.00 and marched steadily up to $1900.00 area. It finished absorbing USD’s devaluation, which crude oil expelled as it fell in price.

THE CRUDE OIL CYCLE CAUSED THE 2008 CRISIS:

The issue is that these drastic crude oil price increases that take place every 30 years, caused the 2008 crisis in a very direct (yet silent) way. In 2007, daily consumption of gasoline use in the US was approximately 391,000,000 gallons. From 2000 to 2007 the price per gallon increased by an average of $1.50. This resulted in an increase of $586,000,000.00 “per day” for gasoline. If you multiply this expense by 30 days in a month, you get a staggering monthly expense – an enormous pressure on an already tight and strained family budget.

Families chose to spend their money on transportation to go to work, maintain their money flow and provide for their family. This decision meant there wasn’t enough money to pay for their mortgage, which caused the housing payment defaults, which triggered the crisis.

It was a tragedy. Unfortunately, the biggest issue is yet to come: if the crude oil cycle continues with this historical and documented pattern (and there is no reason to think otherwise), I estimate that between 2030-2040, the crude oil price will reach at least $400-$500, with a possibility of peaking at $600-$700!

If the US (and world) economy barely survived a $147.3 crude oil price, how will it survive a $600 price crude oil price? Such a spike would resemble an enormous tax increase – a huge sum of money extracted from our economy, from our pockets, on a monthly basis. It would be a financial Armageddon.

REAL WORLD SOLUTIONS TO THIS VICIOUS AND UNMERCIFUL ECONOMIC DISRUPTOR:

I. IMPLEMENT A LARGE/SERIOUS REDUCTION OF CRUDE OIL CONSUMPTION:
We need to begin relying on battery-powered cars and buses in our cities, as well as battery-powered 18-wheelers trucks for food and cargo transportation.

Also, hydrogen-assisted combustion engines can greatly increase the fuel mileage and reduce emissions. This increased fuel mileage would lessen the impact to higher gasoline/diesel prices. Hydrogen fuel cells are totally segregated from crude oil, and are an excellent alternative.

II. USING NATURAL GAS TO CREATE GASOLINE:

The natural gas price does not appear to be as reactive to the crude oil price expansion and does not have strong sympathy trade with crude oil.

A California company named Siluria Technologies has a patented catalytic process which can use natural gas to produce gasoline. These scalable plants can be scattered across the globe to convertnatural gas into white crude oil or directly into fuels. This fuel will work in all current transportation including jet engines, diesel engines and gasoline without any alterations. It actually works better than black crude oil fuels as it is ash-free, which greatly decreases maintenance as well as potential repairs.

Siluria Technologies claims the ability to produce gasoline priced at $1.00 (in August 2014). This is stunning claim. Why are we not hearing about this? Why is this technology not being pursued? When Crude oil starts to explode in price after 2030, we don’t have time to create these fuels. It takes years to create fuels from these plants. We must begin now.

These solutions (natural gas to gasoline, diesel and jet fuels plants), which are scalable and strategically scattered around the globe, could literally knock the legs out from under our next crude oil price expansion.

I fully believe our growing crushing world government debt is the deep tap root for this unnatural crude oil price expansion! What are the odds of our political leaders fixing this growing debt? If my thoughts are correct, this next crude oil price expansion will prove unmerciful and the world will be unable to recover. If we do nothing, the world will in be in total financial collapse.

Sources:

http://www.govtech.com/products/Siluria-Technologies-Turns-Natural-Gas-Into-Gasoline-in-Hayward-Calif-.html

http://stockcharts.com/freecharts/gallery.html?$WTIC

https://www.gpo.gov/fdsys/pkg/CHRG-114shrg94051/html/CHRG-114shrg94051.htm

Disclaimer: This article discusses certain companies and their products or services as potential solutions. These mentions are for illustrative purposes only and should not be interpreted as endorsements or investment recommendations. All investment strategies carry inherent risks, and it is imperative that readers conduct their own independent research and seek advice from qualified investment professionals tailored to their specific financial circumstances before making any investment decisions.

The content provided here does not constitute personalized investment advice. Decisions to invest or engage with any securities or financial products mentioned in this article should only be made after consulting with a qualified financial advisor, considering your investment objectives and risk tolerance. The author assumes no responsibility for any financial losses or other consequences resulting directly or indirectly from the use of the content of this article.

As with any financial decision, thorough investigation and caution are advised before making investment decisions.