Tuesday, December 20, 2005

$150-a-barrel crude prices $5.32 gas, $1000 Gold...- Daily Reckoning

"The American people are going to pay
a terrible price for not having had an energy strategy..."

Six months ago, an analyst group made up of former top-level U.S. government officials calculated a global oil scenario beginning RIGHT NOW, December of 2005 ...

In this extremely likelyscenario , just 3 minor disruptions in the already-strained world oil supply chain cause:
$150-a-barrel crude prices
A $5.32 pump price for gas
More than 2 million jobs lost
A 28% drop in the S&P 500.
But this is just the tip of the iceberg- there are 4 MAJOR CATASTROPHES lurking in the world's petro-future that could make this seem like a picnic . Keep reading and you'll discover how woefully unprepared the U.S. really is for the impending

"Petrocalypse" that's already beginning ...

Dear Daily Reckoning Reader,

Washington: Just under six months ago, a group of the world's foremost oil experts - many of them former high-level U.S. government officials (including a pair of ex-directors of the CIA, a Marine commandant, a senator and a top administrator from the EPA) - gathered to run "war games" on the global petroleum supply chain as it affects the economic future of the United States...

Their findings were so disturbing it's hard to even comprehend .

Millions unemployed, gas doubling in price and the S&P 500
losing more than a quarter of its value - and that's getting off easy.

A lot of people (including a lot of naive investors) think that it would take an absolute cataclysm - or a series of them - to propel oil prices into the unaffordable zone.

Sure, they know that a hurricane here, a takeover bid there or a trade deal over yonder can cause annoying upward fluctuations in oil and gas prices - but they imagine that only something like the total implosion of OPEC, a world war or a tsunami in the Gulf of Mexico could render these commodities outside the reach of consumers, commercial airlines, their local governments, etc....

But that isn't the case at all. According to this independent panel of analysts convened by a pair of high-profile world energy think tanks, even a few relatively minor disturbances in the world oil supply mechanism would send petroleum prices into the stratosphere practically overnight...

In their likely "war games" scenario, three unremarkable occurrences combined to knock just a small percentage of the global petroleum supply offline - and here's what happened in the United States as a result, starting in December 2005 (right now , in other words):
The pump price for gasoline skyrockets to $5.32 per gallon
Crude oil prices explode to more than $150 per barrel
Over 2 million American jobs vanish across varied sectors
The Standard & Poor 500 blue chip stock index drops by 28%
An instant recession all but cripples the U.S. economy.
Imagine the possible fallout from such conditions...

People can't travel because airlines are grounded - or forced into bankruptcy. Some folks lucky enough to hold onto their jobs won't be able to get to work because bus schedules are cut. Grocery store shelves get increasingly bare because it's too costly to ship anything. Car sales plummet as Detroit's Big Three struggle for solvency. There's no money left for travel, entertainment, entrepreneurship or retail buying. The whole U.S. economy stalls on the brink of collapse .

If you think this kind of thing couldn't happen without some unforeseen Armageddon-like events taking place, think again. And as you'll discover in a minute, this chaos would be getting off easy for the U.S. economy (but you could make 3,000% or more on your money in even the worst-case scenario - if you keep reading)...

"The scenarios portrayed were absolutely
not alarmist; they're realistic..."

That's what former CIA Director Robert Gates said about the imminent nightmare economy his team of analysts foresaw at this recent series of oil strategy exercises, caused by just three minor disturbances in the already overtaxed world oil flow...

What are these "disturbances," you're asking? A trio of very likely events plotted by a team of former oil industry executives and government officials - including Rand Beers, the White House counterterrorism expert who resigned in 2003 to protest the Iraq war. They are:

Ethnic unrest in Nigeria (12th in world oil production, 11th in reserves) causes a slowdown in that African nation's petroleum industry.
Al Qaeda attacks an oil terminal in Valdez, Alaska, and a natural gas facility in the Middle East. (Think this can't happen? It already has - see below)
The stepped-up aggression from terrorists spurs a mass exodus of skilled Western petroleum industry workers from Saudi Arabia.
As you can see, these events certainly aren't anything unimaginable, or even unlikely . In fact, similar events to these have already happened ...

What's worse is that beyond simply devastating the U.S. economy and lifestyle on many levels, these "war games" proved just how powerless our government would be to prevent a major recession were things to go even slightly awry in the precarious global oil market - a climate in which...

There is so little leeway between supply and demand that
even minor disruptions can domino into terminal overload.