Gary Christenson wrote this article for Miles Franklin.
We can find many opinions stating crude oil and gasoline prices will rise… and fall. Let’s discuss.
Correlate the weekly prices of wholesale gasoline and crude oil over 30 years. The correlation is 0.987—near perfect. Rising or falling gasoline prices will follow rising or falling crude oil prices.
In My Opinion:
Crude oil and gasoline prices will continue to rise from their low ($27.56 for crude oil) in January 2016—for several more years. Corrections will occur along the way.
WHY?
The history of crude oil shows prices are erratic. Wars, news, shortages, surpluses, recessions and other factors boost or suppress short-term prices. But in the long term, crude oil prices rise because our economic system—government deficit spending, fractional reserve banking and central banks—devalue fiat currencies and cause commodity prices to rise, along with stocks, gold, salaries, political payoffs, cigarettes and the cost of wars.
Examine this 70 year graph of crude oil prices on a log scale. The exponential trend line (straight line on log scale) shows the long-term uptrend.
In 1913 crude oil sold for $0.74 per barrel, the national debt was $2.9 billion and gold sold for $20.67 per ounce.
In 2018 (April 20) crude oil sold for $68.40 per barrel, the national debt was $21,035 billion and gold sold for $1338 per ounce.
Those are exponential increases—compounded annually for 105 years—of 4.41% per year for crude oil, 8.83% for national debt, and 4.05% for gold.
The economic system continually devalues the dollar and forces prices higher.
The U.S. government, commercial bankers and The Fed will not stop spending nor devaluing the dollar, so crude oil prices must rise long-term.
WHAT ABOUT SHORTER TERM?
Prices for next week or next month are a mystery, but a 30 year graph shows that prices on a log scale are nearer the bottom trend line than the top trend line. Prices have risen since early 2016 and the trend is upward.
CYCLE LOWS:
Green lines show a 30 year exponential uptrend channel. Vertical red lines are 87 months apart and point toward five of the six major lows since 1985. The last cyclic low occurred January 2016, and the next is due—IF THE CYCLE HOLDS—in early 2023. In five years crude prices can rise far higher before they bottom again around 2023.
WHAT ABOUT CYCLIC HIGHS?
A cycle of 71 months pointed to five of six highs since the late 1980s. The next high—IF THE CYCLE HOLDS—is due in mid-2020. Prices could double between now and mid-2020 and remain within the channel, or spike far higher.
WHAT WILL PUSH PRICES LOWER?
- Global recession that reduces demand for crude oil.
- New technologies that increase supply of crude oil.
- The middle-east nations “play nice” and agree to peace, not war.
WHAT WILL PROPEL PRICES HIGHER?
- A regional war in the middle-east. Close a sea-lane or lob a missile into a Saudi refinery and global prices will spike higher.
- Chinese and Russian actions diminish demand for the U.S. dollar in international trade, including trade for crude oil.
- More people and more cars.
- A currency crisis whereby the dollar plummets in value and the dollar price of crude oil rockets higher.
- Global economic growth that increases demand.
- Environmental or cataclysmic events that diminish supply.
- And many more.
WHAT DO OTHERS SAY?
From Ellen R. Wald, Ph.D.: “Oil Prices Are Going Up… And So Is Your Gasoline Bill”
“These higher [crude oil] prices are largely the result of a draw down in oil stocks, meaning there is less oil in storage globally. For several years, the oil market has experienced a substantial oil glut, and this signifies a change.”
“This means that Americans will be seeing higher gasoline prices this summer.”
From Nick Cunningham: “Strong Demand, Not OPEC, Is Pushing Oil Prices Higher.”
“The rally in oil prices over the past year likely had more to do with higher demand rather than merely the supply taken off of the market by the OPEC/non-OPEC cuts.”
From Nick Cunningham: “$100 Oil is Back on the Table”
“Oil prices will rise to $100 per barrel if Saudi Arabia gets its way.”
Others will tell you that demand will weaken and supply will increase so prices must fall. Maybe, but I’m skeptical.
Others will also state that the world can’t afford higher crude oil and gasoline prices, so prices can’t rise. I doubt this logic. Americans also can’t afford college tuition or hospital bills, but tuition and hospital charges won’t stop rising.
CONCLUSIONS:
- For over a century crude oil prices have risen by 4.4% every year on average as the dollar is devalued.
- Crude oil prices bottomed in January 2016 and are up over 145% since that spike low. The trend is up!
- The 30 year trend lines show much higher prices are possible within that trend channel.
- Although the dollar remains dominant, global trade increasingly uses non-dollar currencies. U.S. sanctions encouraged Russia, China, Iran and others to trade without using the dollar. That weakens demand for the dollar.
- Crude oil spiked under $11 in 1998 and over $145 in 2008. Prices can rise too far and later fall to unsustainable levels. In the long term dollars will devalue and prices for crude oil will rise.
- The U.S. dollar is weak against other fiat currencies. Its recent high of 103.8 occurred in January 2017. The index fell to 90.07 in April 2018.
- The next cyclic high is due in mid-2020 and the next low is due in 2023. In two years prices can double even without a mid-east war or economic craziness.
The dollar’s purchasing power will weaken for many reasons, and crude oil, gasoline, silver and gold prices will rise.
Gold has increased 4.05% per year, every year on average, since 1913. Gold has increased 390% since 9-11.
Silver has increased 280% since 9-11. Higher prices for commodities, especially silver and gold, are coming.
Call Miles Franklin (1-800-822-8080) and protect your savings and retirement with silver and gold bullion and coins.
Gary Christenson
