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This past week saw the escalating and dangerous situation in the world oil markets spiral further out of control. The U.S. continued its determined drive to sanction oil exports coming from Iran. Now economists and strategists alike are predicting that there will be a dramatic shortage in worldwide oil supply, per CNBC's interview with several strategists. The increasing stress and renewed concern over tightening energy supplies could drive up oil prices well into three digits to over $100 per barrel.
This is a significant reason for why you need to get some IRA-approved precious metals now. Gold makes sense in an IRA precisely because it tends to rise when commodities like oil move higher and drive up inflation across the board. It is time to seriously consider some gold IRA allocation strategies. You should do it while gold prices are still on sale as compared to the rest of the equities' and bond markets.
U.S. President Trump Pushes OPEC to Significantly Increase Oil Production Output
It would be hard to blame President Trump for leaning on OPEC this week. If production output does not quickly increase, oil prices in the $80's per barrel may soon seem like only a fond and distant memory in a matter of only weeks from now.
Unfortunately for everybody in the oil consuming world, the key OPEC organization along with the important non-OPEC producing nations have so far proven uncooperative in response to the demands. Just last week in Algeria, OPEC kingpin Saudi Arabia (the de facto leader of the notorious oil cartel) marshaled its allies to resist the requested oil output increase.
While political reasons are a motivating factor for the U.S. administration ahead of the upcoming crucial mid-term Congressional elections, there is far more than only this at stake. Senior Analyst Tamas Varga of PVM Oil Associates explained this in his research note from Thursday:
“The unwillingness of the 25 producing nations to declare their intentions to ramp up production in their effort to replace Iranian barrels all of the sudden produced a very tight supply and demand balance for the fourth quarter of this year. As a result, the talk is now (of) Brent reaching $100 a barrel this year.”
This map shows the OPEC nations of the world:
Indeed global prices rose .65 percent for International Brent Crude in London and over one percent higher for WTI West Texas Intermediate in Houston, Texas. This saw prices at nearly $82 per barrel at the day's high on Thursday.
It has conjured up images of a few years ago when oil topped out at more than $100 each barrel. This enriched the oil producing OPEC and non-OPEC supplying nations alike, while creating misery and suffering for the various people and national economies in the oil consuming majority countries of the world for months during and after the price super spike.
Tensions With Iran Threaten to Upset the Global Economy Yet Again
It is only five weeks until the American targeted crude sanctions against Iran take effect. Iran is the third biggest producer of oil in OPEC and one of the largest in the world. While other European and Asian countries are trying to find ways around the punishing sanctions against Iran, the American sanctions will still cause a dramatic and instant restricting effect on the Iranian oil exports. Strategists and observers alike argue about how deep this bite will be come November 4th and how much of the oil from Iran will vanish from world markets then.
There are analysts within the energy markets that believe as many as 500,000 bpd (barrels per day) will be gone from the world markets as the U.S. sanctions start to take effect. Still others fear even two million barrels per day will go offline in future months. Keep in mind that Iran was peak exporting over the summer approximately 2.7 million barrels per day. It equates to practically three percent of the planet's daily energy consumption.
An unsung story emerging from this whole tension-fraught scenario is that the Europeans are starting to create their own payment system independent of U.S. global payment networks and American dollars. This is as a direct result of the vocal European frustration that America is weaponizing the dollar against Iran when the rest of the world feels that Iran has not done anything wrong. It is a side story that bears close watching for the future of the dollar and dominance of the U.S. economy.
What About Saudi Arabia's Legendary Spare Oil Production Capacity?
There are rumors that despite Saudi Arabia's unwillingness to push the Arab-dominated oil cartel into higher production quotas, the Kingdom is actually readying itself to secretly put additional barrels of oil on the market in their historical role of missing oil market supplier.
While the Mideastern controlled oil cartel actually may not boast much additional spare capacity for covering the anticipated upcoming plunge in Iranian oil output, off the record sources told CNBC this past week that the Saudis are prepared to inject an additional 550,000 more barrels per day into global energy markets. According to this theory, the rising supply of Saudi crude would heavily depend on the evidence of any increasing demand. In other words, if the demand on the global energy market increased, then the Saudi-posted oil supplies would be boosted accordingly as necessary.
RBC Capital Markets' Commodity Strategist Michael Tran warned in his Wednesday research note that:
“The lack of spare capacity will be the dominant market narrative over the coming months as OPEC seeks ways to mitigate losses in supply. While our long held, structurally bullish outlook remains tactfully in place, the pace of the supply outages may present further upside risk to our view.”
In other words, oil prices will be rising whether OPEC tries to offer additional oil market supplies or not. You need to pay attention to this trend and protect your own finances against it.
The Bullish Relationship Between Gold and Oil Is Historically Established and Positively Correlated
Few analysts and economists will attempt to argue that there is a long-term historically proven relationship between rising oil and subsequently increasing gold prices. This is the case for several reasons. On the one hand, they are both popular commodities whose supplies are extremely limited and which can not be materially boosted (on demand) to keep up with rising demand.
On the other hand, higher oil prices cause inflation to rise. As inflation rises, this is bullish for gold and other precious metals. The rising inflation has a natural tendency to take gold prices with it also because gold is a safe haven in which many investors have always sheltered the value of their money as prices are rising.
Gold Will Protect You From the Oil Driven Inflation and Will Also Simultaneously Benefit Alongside It
When oil prices break through $100 per barrel, it will be negative for equities markets. Higher inflation drives investors back into safe haven assets. This is why you need to move some of your assets into IRA-approved gold. You can now keep gold in top offshore storage locations per the IRS Gold IRA rules and regulations. Now is the time to get serious about diversifying your portfolio into an alternative asset that will survive and thrive when the dreaded oil driven inflation returns in full force. That time has already begun, so do not delay much longer.