A leading investment firm says the conditions of a “perfect storm” are brewing in the economy that could see oil prices skyrocket to $200 a barrel and gas prices to $5 or higher.
According to an analysis by Swiss America, such a scenario could “lay waste” to millions of investors’ portfolios.
“Today, the U.S. has less than 5 percent of the world’s total population, but consumes 25 percent of the world’s total supply of oil. Oil prices have jumped from $17 in 2001 to over $55 in 2005 – skyrocketing 65 percent in the past year alone!” the analysis states.
“Demand is simply swamping available capacity, and that means high oil prices are here to stay.”
Swiss America notes that the cheap, easy places to find oil are already being pumped and that new sources will be both expensive and hard to reach.
Says the company: “Could oil prices hit $60, $80, $100 or even $200? They sure could. Keep in mind that today’s $50 price tag is still not as high as the oil spike in the 1980s, when the Iran/Iraq war pushed inflation-adjusted oil to the equivalent of $80 a barrel today (thanks to a devalued U.S. dollar).
“Crude oil accounts for about 44 percent of the cost of a gallon of regular grade gasoline. So, if oil prices double, from $30 per barrel in 2004 to $60 in 2005, the cost of a gallon of gas could move up from $2 presently to $4 or $5 per gallon!”
The analysis notes the world “is about to run out of cheap oil forever,” stating: “Within the next few years, global production will peak, say the experts. Thereafter, even if industrial societies begin to switch to alternative energy sources, they will have less net energy each year to do all the work essential to the survival of complex societies.”
Swiss America goes on to note the oil shortage likely will result in “resource wars” in the Middle East and elsewhere as the supply of black gold dwindles.
“Because of the size of Middle East oil reserves and the fact they have conservatively produced, OPEC’s Middle East producers are naturally thrust, more than ever before, into control of world oil supply in the very near future, and also regarding natural gas,” states the analysis. “We all know how much their actions have controlled ours in the past when we produced a higher share of our needs – how about in the future as our production and reserves decline and consumption and import ratios swell?
“It’s up to large energy-deficit-consuming nations like the U.S., which are rapidly depleting their own reserves with our insatiable and unsustainable appetites, to be responsible for our own actions and not feel like we are entitled to a ‘free lunch’ from resources owned by others.
“This seems to mean U.S. vital interests in the Middle East region are greater than ever – and the U.S. is moving into a position less in control of its energy destiny than ever before.”
Swiss America links the oil crisis to inflation:
“Rising oil prices bring with it rising inflation – no rocket science here. Rising inflation brings rising commodity prices on everything, which boils down to less money in consumer’s pockets, which drives two-thirds of the U.S economy, which drives the world economy – or used to anyway.”
The firm advises investors to “inflation proof” their portfolios by investing in gold as a hedge against inflation, saying the phenomenon of the early ’80s is poised to occur again.
States Swiss America; “The price of the 10-piece set of common date U.S. gold coin set stood at $5,325 in of January 1979. But by January 1980 it reached $16,500 – a threefold increase. The coin market peaked in January 1981, with the same 10-piece set now valued over $35,000.
“Such dramatic increases in the coin market had never before been seen – nor even dreamed of. Coin collectors who had patiently built collections during the 1960s and 1970s were rewarded with amazing profits – if they decided to sell. Many coins bought during the mid 1970s for $500 were sold during this period for $2,500-$3,000.”
Get into gold, Swiss America says – “That way you are covered no matter what happens with oil, terrorism, recession or inflation.”