Saudi oil production and depletion

[Ross]

There is an excellent article on world oil supply and reserves
at ..http://wattsupwiththat.com/2012/05/3...on/#more-64606

[Sonny]

I Read yesterday that the Saudi were producing over 10million bpd , which would be at top of the chart. Both Brent and WTI were down ~3% yesterday, I haven't checked prices yet today.

[Ross]

Iranian and Saudi oil production

[dharma]

What is interesting about the graph is the "on-off" nature of Saudi production increases. As a policy tool, oil is big, but blunt, and slow to get into action. The Saudis tend to be rather precipitous in the way that they use it.

They should be able to maintain present rates for the near future:

http://www.theoildrum.com/node/9223

[Ross]

There is a rumor that at one stage TPTB bought those on/off events with extra
behind the scenes payments in gold . Do you place any credence in that
story ?

Kindly note the following extracts are quite old ( circa 1997 ) .

It is the movement of gold in the hidden background that has kept oil at these low prices.
Not military might, not a strong US dollar, not political pressure, no it was real gold.

Now all govts. don't get gold for oil, just a few. That's all it takes. For now! When everyone that has exchanged gold for paper finds out it's real price, in oil terms they will try to get it back. The great scramble that "Big Trader" understood may be very, very close.

The Central Banks could hold gold down for some time, even with massive buying. Watch oil!
If it rises much and gold isn't sold off then the game is over.

Source of extracts ...
http://www.usagold.com/goldtrail/archives/another1.html

[dharma]

At present prices, I make the total value of all the gold ever mined about $8.5 trillion. World yearly gold production is about $96 billion.

World oil consumption per year is about $3.2 trillion. All numbers courtesy of the back of the envelope on which I've been scribbling.

Even a fraction of that business done in gold would send the price to the moon, and empty the vaults of oil-importing countries, in very short order.

Conspiracy theorists frequently fail to take the time to do their arithmetic.

[Ross]

Dharma said ...

At present prices, I make the total value of all the gold ever mined about $8.5 trillion. World yearly gold production is about $96 billion.

World oil consumption per year is about $3.2 trillion. All numbers courtesy of the back of the envelope on which I've been scribbling.

Even a fraction of that business done in gold would send the price to the moon, and empty the vaults of oil-importing countries, in very short order.

Conspiracy theorists frequently fail to take the time to do their arithmetic.

If I am reading him correctly the periodic gold/oil bribe ended around 1996
when big traders from the Far East recognized the opportunity presented by this
price manipulation .

Examination of a Gold/Oil price chart for that period does show it to be roughly the time at which oil started to climb dramatically .



Furthermore he does not say that the full price was paid in gold ,
rather he asserts there was a secret extra payment in gold to one producer .

Understand that oil is still traded for a certain number of US$ but after the
deal is done a certain amount of gold is also purchased "with the future flow
of oil as collateral".

It is easy to know that gold could not have been traded for all oil sold. This was never the intent. They only wanted to
pull a small amount out of circulation on a regular basis. Using a small amount of oil as a partial trading vehicle gold could
be purchased in an all paper deal to hide it's price. As I said before, if they walked up to the plate and started buying
outright it would run the price. It is working. They only need 200 million ozs. When the system breaks that gold would
be worth all the oil in Arabia and then some.

If if TPTB were willing to indulge in such shenanigans in 1996/7
then what are they secretly doing today at a time when the
oil price is arguably even more critical .

I think he is worth reading because as a consequence of
the story he tells there follows most interesting predictions and
comments of the following kind .

If the world bids up the price of gold, all deals will be off!
It would be every nation for themselves.Oil would explode in price!

This one is a brain cracker .....

You see, all currencies now compete with each other, not for value of wealth but for "USAGE".

And if that was not enough try this one ...

Will Japan sell US treasury debt and risk taking dollars out of "usage"? Not in your life! Nor will any other CB! They will talk about it. They will sell a little. But sell a lot? It will not happen. You see oil is the key and that connection to the dollar is changing. Foreign CBs will even sell some gold to try and keep the US$ in play ( see my other posts ) . Ever wonder why the US treasury has not sold gold, it would have the opposite effect!

[dharma]

Originally Posted by Ross

If I am reading him correctly the periodic gold/oil bribe ended around 1996 . . . Furthermore he does not say that the full price was paid in gold, rather he asserts there was a secret extra payment in gold to one producer

Sorry, Ross, it's just not clear to me why we should care. How is this any different from giving this mystery producer a cash bribe and letting him buy the gold for himself? What significance are we to ascribe to what seems like a pretty small potatoes transaction?

Meanwhile, back at the ranch:

Saudi oil output rises to highest level in 23 Years

http://www.jpost.com/Headlines/Article.aspx?id=272291

[Ross]

Dharma said ...

What significance are we to ascribe to what seems like a pretty small potatoes transaction?

The Author has ...
# Described how Central Banks became trapped in to
a situation of selling gold and why that the situation is now beyond repair .

# He has forecast an imminent crisis during which oil producers will be
reluctant to accept paper money . The implications are incalcuable for energy poor
and gold poor nations , not to mention the future value of gold .

# He has explained that there is already a long established pattern of
of payment in gold . Thereby giving great strength to his forecast
of an imminent context in which oil producers drive the value of
gold to a stratospheric level .

# He as forecast that at some point governments will
no longer allow gold trading because of its critical link to energy .

# Even knowing that gold trading will be illegal he still strongly
recomments its acquisition .

# He has warned that gold in the ground will have much lower
value than above ground gold and hinted at why .

# The history he provides gives strong clues suggesting a
previously hidden reason why Saudi oil flow stops/starts at
critical times .

# He has provided a reason not immediately obvious to most observers why
Japan , China et al will be extremely reluctant to sell USA bonds .
( It would destroy the oil trade currency and may force the use of gold ) .

and much more .....

[dharma]

Rather a convoluted series of conclusions from thin evidence, it seems to me, though he does mix in a few more solid prognostications.

I think it is very likely that gold will go higher, and, indeed, much higher, but timing is uncertain, and it could crash like a ton of bricks first, as the deleveraging process gets away from the central banks and deflation crushes the world's economies. So, should you buy gold now?

I think it is very likely that oil producers will want gold for their wares, at some point; in fact, they already do. Problem is, as I noted above, there's not enough gold in the world to support a trade in oil—and oil will crash very hard in a deflationary environment, too, making it a good deal less practical for producers to demand such concessions. So, should you buy gold now?

Gold trading will be illegal? Possibly; governments are already feverishly trying to impose capital controls, and currency controls will be next. You might end up with something of great value that you can't buy, sell, or trade without a lot of genuine risk. So, should you buy gold now?

The rest is a mishmosh of conspiracy theory and rank speculation. I've been hearing the same stuff for over thirty years. Maybe some of it is true. So, should you buy gold now?

Because that's the real question, isn't it?

[Ross]

So, should you buy gold now?

I think you already know the answer to that question
but I will reply anyway .

# Hopefully you already accept that in response
to the unsustainable financial situation politicians
are forced to continue on an every increasing spiral
of lying , looting wealth and printing money .
The situation is now so bad that to retain power
they have no choice but to do so on an ever
increasing scale .

# Change is now gathering pace as the cascade of
failure goes exponential . It will appear especially
fast to us because TPTB will hide if from us for as long as
possible .

# You do not need to hold gold if you have some
other mechanism to protect your assets from legalized
theft , inflation and onerous taxation . Bearing in mind
that any identifiable wealth will be a prime target for
extraordinary taxation and/or confiscation .

# Even if the oil producing nations continue accepting
USD$ all paper wealth will be degraded , or made
worthless , or make you liable for taxation ,
or all of the above in some sequence of joy
followed by the bliss of being naked and at
one with nature .

# Do you know of another asset other than physical
gold that meets the above criteria , is portable ,
fungible and will become more sought after , even
worshiped ?

# To buy an oz of gold you must transform $1600 of
continuously degrading paper money to safe physical form .
Over a 3 year period paper worth $1600 * 0.8 * 0.8 * 0.8 = $820 .
To delay may mean gold suddenly becomes unaffordable
is waiting for it to drop $50 worth the risk ?

# The proverbial frog in hot water must move
its ass or the mob will have it for breakfast .

[MaxTheKnife]

I have a can of vienna sausages I'll sell for $1,200.00. PM me if you're interested. But don't try to palm any gold or silver off on me. It always gives me gas and makes my teeth hurt...

[Ross]

Hi Max

With any luck in less than three months from now a lady gold bug
will offer to buy your $1200 sausage for one tiny speck of gold dust .

Yup , same old story , gold --> females ---> sausage inflation .


Dharma ... after doing a bit more reading my answer is an emphatic
'yes' and that you treat it as urgent .

.

[MaxTheKnife]

Hi Ross. I won't accept gold as payment for my vienna sauages. Only something with equal or greater food or trade value. A tiny speck of gold will just make me laugh and pee my pants...

[dharma]

Ross, I started trading precious metals and precious metals stocks in the late 70s, in anticipation of financial disaster. That specific disaster—hyperinflationary depression—has been imminent ever since, yet it never seems to get here. Which is not to say, of course, that it never will.

Max, possession of gold does not preclude the possession of vienna sausages, or vice versa.

[MaxTheKnife]

dharma, I'm sure you realize that my point is that you can eat vienna sausages. And while gold and silver sure are purty to look at, they won't fill an empty belly. I don't want to argue about it, but you sure can't dispute that fact. When the bottom falls out of the USD insanity, how many gold and silver collectors do you think will have food for trade? Maybe a few, sure. And trading gold or silver for food with those types will be fine if you can find them. But don't try trading gold or silver to me for my food. Not happening.

[dharma]

I got your point, Max. Be well, and well fed.

[MaxTheKnife]

Thanks dharma. But that doesn't help me understand your position any better. You understand mine. I would like to understand yours, for whatever thats worth. My question is how can you rely on silver and gold for your life? What difference will silver and gold make when what you need is food? I'm just being realistic. You can't buy silver and gold at the grocery store. And neither can you buy groceries with silver and gold. Try it. At least, you can't get full value for your precious metals. Lets have a discussion. Don't give up on me and shut down. I really want to know what you think about this $$ debacle. Its a scary thing and is coming full speed ahead, damn the torpedos!!!...

[dharma]

It’s a very old, and rather silly, circular argument, Max. Broadly speaking, everyone advocates for their favorite calamity and its solution. The gold guys say, your money isn’t going to buy much when it’s worthless paper! The food guys say, you can’t eat your gold! The gun guys say, your food isn’t going to do you any good when the refugee hordes come and take it away from you! And then the religious guys trump everyone with, your guns and gold and stored food will never get you into heaven!

Well, no, they won’t. That’s not what they’re for. No solution covers every base. I don’t wear my work boots to weddings, and I don’t dig in my yard with patent leather loafers.

Meanwhile, that guy at the head of the line—that guy with the nasty old paper money—has been kicking everyone else’s ass for the forty years I’ve been hearing these arguments. There’s a lesson there.

[MaxTheKnife]

Maybe its worked for forty years. It's not going to work much longer. Paper money will be as useful as toilet paper in short order. The most important question we'll have to answer in a day is how many dollars will it take to wipe my backside today?

[Ross]

Dharma said ...

Ross, I started trading precious metals and precious metals stocks in the late 70s, in anticipation of financial disaster. That specific disaster—hyperinflationary depression—has been imminent ever since, yet it never seems to get here. Which is not to say, of course, that it never will.

It is not necessary to have hyperinflation for gold to be an easy
winner .

What was the US debt in "the late 70s " when you started and what is
it now .

As I type this the debt clock is invisible to my eyes but I believe it to
be approx $15.7 Trillion Plus .

The inevitable consequence of that debt is reduced buying power
of the USD$ .

You can escape that wealth tax by simply switching to gold .

Will gold appreciate in real terms ? As I recall on the 28 th June or
there abouts China will start buying oil with gold . Are they using gold
because they love the Iranians or because they get a discount ?

If you decide they are getting a discount ( in some form ) then ponder
this ....

If Chinese entrepreneurs whether they be business men or corrupt
officials decide to on-sell that oil at a profit what are the consequences.
Even if they do not on-sell that oil the consequences are inevitable .
Those same business men will return to the Iranians again and again
for more oil . So far so good but there is a problem .
They need to pay in gold . If you understand the LBMA and COMEX you
will know that what is traded is 98% paper gold . Paper claims to gold .

Where will those Chinese entrepreneurs obtain the needed gold ?

What happens to the price of gold if those Chinese buyers use the
LBMA/COMEX to buy gold options and then stand for delivery ?

Sellers of those options will be forced to cover with real gold ,
that is what will happen and they will be forced to do it simultaneously .

In other words the very mechanism used by Central Banks to manage
the gold price will be broken . So will the USD$ as a reserve currency
because it is acceptance of the USD$ by oil producers that enables the
USD$ to retain its world reserve currency status . When other oil producers
see the Iranians being paid in gold they will continue to eagerly accept
USD$ at current value when it is backed by $15.7 Trillion in debt and
moving to junk status . Of course not .

What happens to the demand for gold when other oil producers offer
a discount for gold ? What happens to the price of gold when issuers
of paper gold are forced to cover with real gold because the flow of
physical gold to the oil producers creates a high demand for redemptions .



Oh yeah one last thing .
To twist old saying "What cannot be allowed to happen
will not happen" . So what methods are available to stop the
China/Iranian/Gold deals and what will they do to the gold price ?

[dharma]

What you're describing, Ross, is basically what is called a short squeeze. It may happen. It may not. I've seen a great number of setups for short squeezes over the years that never materialized.

Investing is a matter of playing percentages, perhaps even playing hunches sometimes. This convoluted chain of events strikes me as a poor argument, in and of itself, for putting a large quantity of capital into gold. I favor the classic: gold is a short on the governments of the world. It's well worth accumulating on that basis alone.

[Sonny]

"Sellers of those options will be forced to cover with real gold ,
that is what will happen and they will be forced to do it simultaneously"

Ross, If they sold the options, couldn't they close their positions by buying the options?
they have that choice rather than delivering solid gold.

A "buy to close" order.

~

[Ross]

Sonny

Call options grant the right but not the obligation to take delivery
and the buyers would need physical gold to acquire oil at a substantial
discount.

In a market where price and demand are known to be rapidly rising
how long can naked short sellers continue operating if a high proportion
of volume purchased stands for delivery ? Assuming naked shorts are
government proxies then effectively our government would be subsidizing
cheap Chinese oil .

Yes it is arguable futures market buyers may be bought off with
cash but the oil buyers still need gold from somewhere .

My rough sums suggest that the China/Iran/Gold/Oil deal
if used for internal consumption may not be enough to break the system
but then so much depends on market sentiment and the willingness
of price manipulators to suffer financial pain .

However Chinese negotiators are rumored to have been seeking
a 40% discount to market price . Whether they got it I do not
know . The point being that a 40% discount or even 20% would
allow profitable on-selling and quickly allow a ramp in volumes traded .
Even so it would probably still take many months to for volume to build .

How long can naked shorts provide x% of the world with subsidized oil
and would they try ( not for long I think ) ?

The absolute final death blow of course occurs if other oil suppliers
join the fray because they are missing out on oil sales and the
safety of physical gold .

When that happens gold will go to atleast $10,000 per oz and more
probably $30000 plus . Well it would if gold were allowed to continue
trading . I think governments will start locking up all available gold
because they understand it is now the currency used to purchase oil.

IMO the pressure is now on to stop Iranian oil physically leaving
port and I doubt that denying tanker insurance will work for long .


Oh wait what is this ? Iranian oil facilities hit by a computer virus.
Well what an amazing coincidence .
http://www.foxnews.com/world/2012/04...from-internet/

[Sonny]

"The absolute final death blow of course occurs if other oil suppliers
join the fray because they are missing out on oil sales and the
ramping gold value ."

" Join the fray". Ross, That sounds like you're thinking all of OPEC would be willing to sell oil at some big discount just for payment in gold. Why would they do that when they can go buy gold bullion from vending machines with their VISA cards at the Dubai Airport ?

~