$8 per gallon - not just a nightmare

The news that Saudi Arabia is intending to act on oil markets to press the prices down led to a small 1% decrease of the crude-oil-price on Tuesday. On that day came the information that the top oil producer has hired 11 supertankers (2 million barrels each) to transport an extra oil to United States in response to rising oil prices. On the same day the Saudi Oil Minister Ali al-Naimi said that the kingdom was pumping 9,9 million barrels per day - the highest level in decades. He added that they have readiness to supply every request from customers and Saudi Arabia is willing to turn the taps to maximum capacity of 12,5 million barrels per day immediately. Months ago Saudi Arabia announced that it finds $100 per barrel as "ideal" oil-price.

At current moment The American president Barack Obama is under pressure to bring the oil prices down, because he is in re-election campaign and high prices on gas-stations are making the voters angry. So it is absolutely possible the new Saudi initiative to be a deal with Obama to lower the oil price to below $100 for the months till election.
 But generally it is doubtful if such a scheme is possible. The oil price does not depend only on Saudi Arabia, but also on other countries and not all of them are US-friendly. It is good to remember Iran hostage crisis in 80s, that led to an election loss of Jimmy Carter. Iran is a big oil producer under strong political pressure, so it may act in opposite of Saudi's direction. The same US-"fan" is Hugo Chavez in Venezuela. And of course we must not forget Russia and Putin, that does not care about Obama, but will make more money if the oil is going up. So even among the oil producers there is no pro-Obama and press-down-prices consensus on supply policy.
 But the main problem with oil prices is not the supply. It's the demand. And no supply measures can compensate the increase of demand.
 In fact I don't mean a real physical oil demand that is relatively stable and is not increasing or decreasing sharply. I mean the general oil-market, where the trade is much more times bigger than the entire physical oil market. And exactly that market is forming prices. And we have a big problem on that market.
 The problem is called "moneyprint". In last years central banks of leading economies are racing in printing money, needed to save problematic banks, repay old government debts and finance new deficits. Thousands of billions of new dollars and euros are on market. An no one can stop them of creating inflation. In all human history there is no case of flooding the market with money and avoiding inflation. On crude-oil-market the inflation means higher prices of all oil-related assets.
Rising oil prices are nothing else than inflation. The gold, the energy and the food are the first to rise when inflation comes. So all they are now rising. And no supply can stop this.
 Saudi Arabia has no the capacity to compensate all new free hot money that appear on market and pump the prices up. Even if the oil production is doubled or tripled immediately (that is in fact impossible), even then the prices will continue to go up, because the money supply is much more than doubled or tripled.
 But the most ridiculous part of all this is the continuing moneyprint. Obama is afraid of high oil prices, but at the same time he is not making any real spending cuts and is preparing a new high deficit budget. This deficit will have to be funded by FED with a newly printed dollars. There is no much other US-debt-buyers that can fund the deficit. The major buyer is Ben Bernanke with his QE-programs. So Obama is praying for lower oil prices, but the same Obama is stimulating the inflation by high deficits and inevitable dollar-printing.
 The same is the situation in Europe where in 2 months time the European central bank (ECB) has pumped more than 1 trillion new euros on markets. And the same are doing in Japan, in China and in developing markets.
 So what's the result of all this? The result is a sea full of money and rising prices of everything. It's so simple - the old well known inflation...
 By now it is not yet sure if we will see a hyperinflation as some of apocalyptic analysts predict. But it is absolutely inevitable to see so called "galloping" inflation. While "hyper" means 60% per month, the "galloping" means about 20-30% per year. And with current moneyprint this - second, is already impossible to avoid. Galloping inflation may mean $4,50-5 per gallon before the end of this year. A bad news for Obama and his November challenge. But the worse news is for his voters that will face $6, $7 or even $8 per gallon next year, if the moneyprint situation doesn't change.
By now there is no plans of spending and deficit cuts of the US government. Therefore the moneyprint will have to continue. In this situation even the King of Saudi Arabia will not be able to stop the skyrocket of energy prices...


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