Rising Oil Prices May Be the Forerunner to War
Traders' fears that an impending attack on Iran by either the US or Israel is related to the rise in oil prices.
The headlines are widely publicizing the new highs being made in gold. Soon the news may be directed to gushing gold in the energy space … Black Gold.
Many of the fundamental reports I read on oil say that there's an "oil glut", and that the world is "swimming in oil". That may in fact be true, but our motto at Coby Lamson is that "Price is Truth" and all else is just interesting commentary.
The rising price of oil and its potential impending breakout is telling a much different story. In this piece I'll examine price trends (the truth), and I'll also speculate as to what the rising price of oil may be telling us.
On July 18, 2008, our Grail Indicator gave us a sell signal at $130 per barrel. See this weekly chart:
Click to enlarge
On March 17, 2009, our Grail Timing Indicator then gave us the first buy on oil at 51 per barrel after its momentous decline. Just a few days ago, we just received a confirming momentum buy on the daily chart.
With a close above $77, we see oil possibly going to $92 or $107 per barrel. A rise to $92.26 would be a 38.2% Fibonacci retracement of the full down move, and $107.26 would be a 50% retracement of the collapse from the July 11, 2008, peak to the February 13, 2009, low.
Later in this article I'll lay out a possible scenario that could push oil to new all-time highs. Should such a rise take place, it would rock both world markets and economies.
In my recently published book Discover the Upside of Down, there's a chapter entitled "Black Gold: Boom and Bust profit opportunities". I believe that we may be entering a time where we'll witness the "boom" portion of that sequence. Chapter four of Discover the Upside of Down begins with this observation:
The proverbial "powder keg" in the Middle East has been hanging over world markets for a very long time. As the new century rolls along, the sparks are close to setting off a combustible explosion. The fuse is getting shorter on this powder keg explosion with fears of Iran becoming nuclear and a weapon possibly finding its way into the hands of terrorists. The fuse gets shorter by the day with the political instability of Pakistan, and even shorter as the US continues the war in Iraq. With so much instability in this region, it's only logical to assume that the fuse is close to being lit and the explosion is set to incinerate global stock markets and economies.
As the Federal Reserve frantically prints new dollars in the new century to stave off a NASDAQ 2000-like real-estate implosion, the value of those dollars lessens and that affects the exchange rate against the other world major currencies.
As the US dollar has fallen in the first several years of the new millennium, some nasty repercussions have resulted. Since oil is priced in US dollars around the world, OPEC has responded to the falling dollar with higher oil prices.
OPEC kept supplies tight to keep prices high. One reason it does this is to compensate for the reduced purchasing power of the falling dollar.
While oil-producing countries could decide to not accept US dollars, that would not only be the wrong economic decision, but would also be a very dangerous one.
When Iraq threatened to not accept US dollars as payment, it wasn't long after that the US military invaded, and the leader who made that comment was roped and hung. Iran has recently followed Iraq's lead and has stated that they "prefer the Euro or Yen" and no longer want to trade oil for "worthless dollars".
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