Rather Than Asking OPEC to Increase the Supply of Oil, Perhaps We Should Ask the Federal Reserve to Decrease Supply of the Dollar

by | Jan 14, 2011 | Headline News | 29 comments

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    News headlines as of late have been alluding to the idea that the reason for rising oil prices in the last 18 months is OPEC’s refusal to boost supplies.

    The global economy can withstand an oil price of $100 a barrel, Kuwait’s oil minister said on Saturday, as other exporters indicated OPEC may decide against increasing output through 2011 as the market was well supplied.

    Analysts have said oil producing countries are likely to raise output after crude rallied more than 30 percent from a low in May because they fear prices could damage economic growth in fuel importing countries.

    Source: MSNBC

    The trend of higher prices in oil and other commodities will most certainly put strain on an already fragile global economy, but is OPEC to blame?

    United Arab Emirates Oil Minister Mohammed al-Hamli said crude oil inventories are “quite high. It’s the highest over the five years average… The market is well supplied.”

    Source: MSNBC

    We tend to agree with the UAE oil minister in this regard, and anyone who takes a brief peek at the following chart will realize that this is not an exclusive problem of supply:

    Crude Oil Supplies and Oil PriceSource: The Oil Drum

    The above chart depicts oil (and liquid fuel) production numbers from 2001 through September of 2010 for OPEC (light blue) and other producers. One thing you might notice right off the bat is that there has been no significant decline in production and the numbers are only slightly down from 2008 when the price of oil peeked at $140 per barrel. You’ll also notice the black line which tracks the price of oil. Notice how the price rises and falls, without any direct relationship to the actual production capacity.

    Thus, we can conclude that the current rise in oil prices is likely not due to a lack of production. The next obvious question is, what about global demand? Given that China, India and other countries are cranking up their need for oil daily, it is almost guaranteed that demand will rise – and without boosting production we will certainly see a rise in the price of oil. However, it doesn’t seem that current demand for oil is anywhere close to justifying a price boost of 30% since May of 2010 and the average $3.10 gas we’re seeing today.

    fig6-oilconsumptionSource: U.S. Energy Information Adminstration

    Demand is up, and it will continue to rise each year at an estimated 1.5 million barrels per day, yet this is not why prices are rising today – even though, admittedly, supply vs. demand does play a part, albeit a small one.

    As we saw in the lead up to the eventual commodity and stock market crash of 2008, the missive here is to point fingers at everybody except for those who are actually responsible. Today the headlines blame OPEC. Tomorrow they will blame anonymous market speculators. Same story, different year.

    The real reason, at least this time around, may very well have to do with the following:

    adjusted_monetary_baseSource: Federal Reserve Bank of St. Louis

    That is the most recent Federal Reserve chart for our monetary base. The monetary base is basically the amount of currency in circulation (the money floating around in the public sector and being used for groceries and other consumer purchases) plus money being kept in reserves at the Fed.

    The above Federal Reserve chart clearly indicates that there is a lot more money out there today than there was prior to the financial crisis. In fact, if you take a look back at the black line (the price of oil) from the first chart, you’ll notice that the black line and the blue line from the monetary base chart correlate quite nicely.

    All of that extra money the Fed has been cranking out has to go somewhere. In essence, what we have is more money chasing fewer goods – a.k.a. price inflation.

    This is the reason why we are seeing higher prices in not just oil, gas and natural gas, but all commodities as we pointed out in The Real Rate of Inflation and How to Protect Yourself:


    Though the Federal Reserve will argue that there is no inflation based on official CPI data, the above chart makes it clear that the US dollar price for every major commodity is rising.

    This begs the question, should we also blame OPEC for the 76% rise in wheat, or the 68% rise in oats?

    The U.S. consumer cannot withstand $140 oil again. Nor can they withstand the food price increases of 25% to 50% that we’ll see in 2011. Prices will, eventually, hit a breaking point much like they did in 2008 and we will end up with even more people who are broke, hungry and unemployed.

    No, the blame, if any is to be dished out, should be placed squarely in the lap of our Federal Reserve. It is they, not OPEC, who are responsible for unabashed, out of control production of US dollars.

    Rather than asking OPEC to increase production of oil, perhaps we should be asking the Federal Reserve to reduce the supply of US dollars.

    Update: Also see Reginald Kaigler’s Video Commentary “Oil Prices Rising! It’s Supply, Demand & Inflation!


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        • Wheedle, Great movie and one I recommend to anyone interested in the Peak Oil debate. It’s also available On Demand at Netflix.

      1. Well, at risk of being lambasted, would you ask the fox to stop killing hens in the henhouse? Would you ask the bear to stop attacking you and eating your head? Would you say to a rapist, “Sir! Please stop.” and expect him to?

        None of you are that foolish. I know we talk about this stuff but deep down we know. The federal reserve and the 0bama administration (and the senate since they are still progressive-controlled) wants us all equally poor. No entrepreneurs. No outstanding inventors, doctors or scientists. They want to wreck this private economy so we will beg them to be controlled by the District of Criminals.

        I know we discuss it, but, WE ALL KNOW THE TRUTH! Bernake and the government do not want more jobs or a better economy. They want a controlled demolition where they can feign either incompetence or uncontrollable circumstances. The dollar is the economic 9/11s building 7. Boom! and down she comes all because of all that debris and fire. Oh! What a shame. Lies. Lies and more damned lies.

        Crooked bastards! They will get theirs. Nothing is what is seems. When something happens in this world, if the government tells you what it is, there is one thing you can be on: IT’S NOT THAT!!!

        When I see this stuff with legitimate and constructive suggestions that could be done, I laugh. A Mac Slavo or a Wheedle *IS*NOT* requred to fix this. We could tap a 4th grader to fix this. But, it won’t be fixed. We are being economically assassinated, controlled, put down, euthanized. Make no mistake about it. Every failure, every job loss, every “unexpected” is planned.

      2. fix for me is a 2% COLA and 5% rate on CD’s

        “Raise the Fkn rates Ben”
        “get the CPI numbers right BLS”

      3. Comments…..it seems like the media is finally starting to recognize just how bad of shape we are in with rising food prices etc.

      4. Notice what happens when there is a cartel or a monopoly in any area of life that controls or has powerful influence over it,like oil(OPEC) finance(fed) or govt in general ….service is poor and prices are exorbient…..we are seeing this trend in every area of life…power…food…energy…education….you name it a govt bureau and/or a corporation(s) that is favored by the govt has its claws into that area.
        This is the natural result of greed and the insane desire to control other people and their lives ,we are seeing the logical outcome of the disregard for truely free markets by people and entities who see wealth and power as god and morality as weakness!Thanks!

      5. Petro dollars, we are not special. Let them eat oil. Well said NR. The only thing missing is the raising of the left hand. Anybody ready to sail away yet? That is what the Jewish people said. Who do you think will come to our aid so we can bury their dead on our soil….

      6. Check out this video series of former CIA black OPS member Chip Tatum who challenged the U.S. Government and it’s central bankster allies.  He ended up tortured and dead in Panama.


      7. Could the U.S. central bank go broke ?

        Collapse of the U.S. Dollar could become the worst SHTF scenario the American People may ever face. Our elected officials have allowed a central bank to place this country in financial peril. Our elected officials swore an oath to protect & defend the Constitution of the United States, the American People, and This Great Land We The People Call Home.

        Thomas Jefferson and Andrew Jackson warned us that this day would come, if a central bank were given control of our currency.  Gear up folks.

      8. Net Ranger,
        As the Brits would say,  “Spot on, mate”. There are no accidents in this long, drawn out train wreck. Look at the long term trend, the day to day stuff is just noise!! Well done!! 

      9. Just hit my bosses up for a 10% raise and go it.  See….computer guys really do run the world.  Like worker bees…the queen is our slave.

      10. I for one, don’t think the fed will go broke.  The fed is separate from we the people and is free to plan ahead, protect itself, and join up with power-hungry allies whenever it would like to control or “influence” our peaceful lives. 

      11. I got an idea… since there are so many food riots taking place… in places like Tunisia, Algiers, Morocco, Turkey, Lebanon. Russia quit selling their grains on the market because of their drought and fires. Australia’s flooding is taking 1/3 of the coal production off the market and is severely effecting their agricultural production as well.
        Why don’t we just renegotiate the price of WHEAT?  Settle on the size of a barrel, which would be the common measurement, and then 1 barrel of oil trades even for 1 barrel of wheat. Capice?  That would even the playing field fast.

        Of course… you know that the oligarchs are planning to jack up the price of oil to $150 fast… just to crash every economy in the world. Agriculture is dependent on oil and most agricultural products are shipped cross country. They are PLANNING to turn the U.S. into a banana republic. They are PLANNING to create strife and civil unrest just so they can slap everyone into FEMA camps.

      12. Netranger-
        If you get lamblasted in this forum for your recent post, I’d be deeply dissapointed.
        Nothing is as it seems, and the coordinated effort you’re talking about isn’t contained solely within the borders of the United States.
        The only way TPTB get their New World Order will be through the systemic destruction of this one.  The big trick is, they must try and control the timing of “the crash” so as to ensure that all of the dominoes fall at once.  A Greece here or a Tunisia there won’t do it, and if not properly timed, those individual countries will eventually find a way to rebound.
        No, what they need is 180 countries to face the same thing at the same time…Then, when food is scant, and riots/violence/upheaval is the norm, and the worldwide population can’t take it anymore, they unveil their plan of The New Society.  One in which we have no borders, no national identities, The Earth becomes sacred, and full compliance will be demanded.  Getting that 100% compliance will be easy as the public will have traded ALL forms of freedom for security and a guaranteed meal…They will GLADLY turn in a recalcitrant neighbor who is not on board with, “The Way.”

        The only remaining question left to ponder is, “When?  I’m no prophet, but make no mistake…Time is VERY short.

        Nice work Netranger.  Keep em coming Mac!

      13. It’s simple/ Why would countries sell their oil at the same price if the Fed is lowering the value of the U.S. dollars?

        If I received 75 bucks per barrel of oil last month and now the 75 bucks buys less food, why wouldn’t I demand more money?

      14. Perhaps the entire Obama regime should resign and exile themselves en masse to a 3rd world country where they belong.  Sudan, Yemen, and Somalia have similar forms of government and would welcome Barack and Co. with open arms. 

      15. Right on NetRanger!  I’m not sure who said it but it’s what I’ve come to live by.  There’s no such thing as coincidence and who benefits.  I have found that by layering that thought process on everything that transpires it’s easy to make sense of things and remove distraction from your life.

      16. Mac,  I understand the IRS will be test benching debit cards for refunds this year for ez refunds.  More electronic money that can be tracked?  “They” are reporting that it saves money….  Reminds me of Katrina money for those over there.

      17. Comments….. I spent considerable time looking over Michael Rupperts website and also read his wiki.  He sounds a lot like Gerald Celente–calling for a collapse.  Is he a progressive liberal–I haven’t figured that out yet. Normally liberals don’t tell you to store food and water, they will tell you to depend on the government for all your basic needs.  Regardless, the video was good.

        I have to agree with what NetRanger said, very good comments NR. 

      18. I was just thinking about this subject as I paid $3.43/gallon of 91 octane here in Scottsdale (I’m sure it’s worse in Kalifornia).  It made me think about Tunisia, etc.  I wonder what it will take for us to get to that point…

        Re Michael Ruppert’s “Collapse” – As I’ve said before, regardless of whether or not Ruppert is correct and/or at all sane, it’s a must watch…if for no other reason than it is a very, very well made documentary, which at the very least gives us things that we should be thinking about.  Some of clips – the stock footage combined with Ruppert’s commentary and the music – are haunting.  In particular, I can’t get the “Food” section/portion of the movie out of my mind…

        One item that I’d REALLY like to know more about – How much oil does it take, from beginning to end, to manufacture a new car (not just the oil in the materials use, but the oil used to extract the materials, transportation of parts, etc.)?  I’ve searched the web a bit and haven’t found an answer yet.  Ruppert suggests that it’s in the thousands of gallons.

        IF that is true, does it really make sense to buy a new car every couple of years to shave off a few MPGs?  Although I do admire people who drives Priuses, etc., it would be insanely ironic if doing so over the “life of the vehicle” does not save as much oil as it took to manufacture the new car.  Then again, this would only be the case if it is assumed that the owner could have instead driving his/her old car for “twice” as long or whatever.

        Just something to think about…

      19. It isn’t the money supply of the common man that needs to be shrunken.  There is less than $1T in actual circulation.  Because this amount is low, you can’t have hyperinflation, it is just impossible, with all the wage freezes and mega unemployment, there is just not enough money in circulation for hyperinflation.

        You need to default and start over.

        You need to cut the Federal government to the bare minimum.

        You need to make a law requiring the Federal government can not operate in a deficit.

        You need to end the Federal Reserve and let the government create/destroy money based upon need.

        You need to scrap all local, state and federal taxes and replace it with a single tax.  Each Jan 1st, each citizen is sent a tax bill for lets say $500, all people pay the same regardless of race.  Those that can’t pay by April 15th shouldn’t be allowed on the American streets anyway.  Recall, govt can’t spend more than it takes in, so expect a mean and lean govt for your $500 in tax.  No more free lunch.  No more free anything.

      20. it’s time to abandon ship, folks, if you can. get as much distance between yourselves and the sinking ship. start preparing for the unthinkable because it’s coming.t he writing’s everywhere now.

        …but all is not lost. don’t go the doom and gloom road. that’ll get you nowhere. life will go on, but it’s going to change, like it or not. change is good. it’s your friend, if you let it be so. i’m not talking about the garbage obama spews. real change comes from within. be the change you wish to see in the world.

      21. I don’t admire people that drive Priuses.  They can build electric hybrid cars/trucks much cheaper.  They just can’t build them profitable.  Ford proved that then took them back.  That is a fact.   An electric pickup truck with a small diesel/12 volt generator & a small rack of pv panels over the bed with a home system of pv panels/battery system to re-charge overnight has been proven.  Still waiting on battery technology to get better.  That will be the key.

      22. Rick, the correct question is how much do they use? The first mass-produced cars were almost exclusively coal-based. Before internal combustion engines the only profitable use for crude oil was oil lamps and lubricants.
        To answer the question, Somewhere I read an exhorbant amount.  But it might just be a pigment of my germination.

      23. The dollar-oil peg is the only reason our economy has not collapsed. Oil runs the world and with it we get it cheaper and can consume as much as we want. this is the reason we are so involved in the mideast so heavily. Anyway Alan “Bubble” Greenspan said that OPEC should move away from the dollar which will soon happen. The way we are spending OPEC nations have been buying gold and silver. Things are getting tough and when the spring and summer come we could be at $4.00 a gallon. Prices are going up fast. Six months ago when i would Soy milk it was at 3.25. Now today when I went to buy some,now it is 3.99! I was so shocked I couldn’t believe it. The American people have not noticed but as the year goes on they will notice.

      24. NetRanger

        “We are being economically assassinated, controlled, put down, euthanized. “

        You are correct – but there is more! (911 is part of it). We are also being ‘assassinated’ in many other ways. The ‘assassinations’ have been in progress for several decades. Think of them as “Death by 1000 Cuts”. 😉 THEY are cutting us in every sense of the word! (our body, mind, soul and spirit)

        Now the tough question: WHO planned it and is WHO is doing it (occasionally directly but mostly through “Intermediaries” (AGENTS))? Try to be more specific than TPTB. What is the LCD (Lowest Common Denominator) of the CRIMINALS?

      25. HINT: Federal Reserve (Bank) is only PARTIALLY correct. 😉

      26. I will provide a much BIGGER clue tomorrow – if you need it! 😉

        Good night, Irene.

      27. I knew nobody would need another clue to identify the CRIMINALS who are deliberately DESTROYING America. It’s SELF-EVIDENT to anyone with the proverbial “half a brain”. 😮

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