THE YEAR 2009 FORECAST

OIL AND THE ECONOMY

History is not immutable but one factor is noticeable again and again: the rise and fall of great nations hinges primarily on their economic strength. Rome, Imperial China, Venice, France, the Netherlands, Portugal, and the United Kingdon all had their heyday, and their international decline followed their economic decline. The United States spectacular economic growth was fueled by cheap domestic oil. But now that the "age of oil" is nearing an end alternative sources of energy will eventually usurp oil. As the demand for oil rose, domestic resources dwindled. The need to import oil eventually became necessary.

The importation of oil from other nations has created the greatest transfer of wealth in history. The U.S. consumes more than 20 million barrels of oil a day, about 12 million of which are imported. Based on prices from the fhe first half of 2008, the U.S. transferred about $1.3 billion to the oil-producing countries every day - $475 billion a year. The other major consumers of oil - China, the EU, India, and Japan - are likewise sending even greater portions of their wealth to the producing countries. The wealth being accumulated in oil rich countries is making them economically and politically stronger; meanwhile, the massive budget deficits are making America a deep debtor nation.

Some of these producing nations have very different viewpoints and international agendas than our democratic friends like Canada, Mexico, Japan, and Europe. Russia, for instance, has taken a tough stance toward our defensive missle plans in Europe. Oil-rich nations like Iran and Venezuela with increasingly voice their opposition to the United States and her allies. More money will be available to terrorists and nations bent on destabilizing the Middle East (Israel in particular), Africa, and perhaps Latin America. Our alleged friend Saudi Arabia has helped to keep oil at affordable levels but this has mostly been in their best interest. They did initiate the 1972 oil boycott remember, and have repeatedly restricted output to drive prices higher. Elements within the Saudi power structure continue to allow billions of dollars to go toward building extremist madrasahs and funding terrorist organizations, including al Qaeda.

Although the world economic crisis has dramatically driven down the demand for oil, oil supply disruptions due to geopolitical events like we have witnessed by the pirates off Somalia, exhortations by Iran and Venequela, continued instability in Iraq, and the worker strikes and security problems in oil rich Nigeria, and Russia's dispute with Ukraine that led to a cut-off of gas effecting Turkey and many other nations in Europe all point to higher fuel prices once the world recession reverses course. The volatile Middle East is home to two-thirds of the world's oil reserves. We will see in the years ahead major plays by oil rich nations to influence the world scene. Major wars and widespread terror and violence will also continue. It is imperative, then, that America take the opportunity presented by the economic downturn and turn to alternatives. Besides wind, solar, and bio-fuels, thermal forces can be harnessed, the ocean' currents can provide electricity, and hydro-electric plants can be buiilt while other smaller ones no longer in commission can be retrofited and put back into operation. Coal is another value resource that America has in abundance (a 200-year supply). We can develop clean coal-burning facilities and we can retrofit old facilities. Although expensive initially, clean burning fuel can also be extracted from coal. The technology now exists to reduce CO-2 emissions in all these areas of production.

There are three scenarios for oil: 1) Prices fall below $70 per barrel. In this case, a global recession occurs, speculators liquidate en masse, developing-world demand falls sharply, the rate of decline in existing fields lessens and new supplies are brought on much sooner than planned, and biofuels growth continues to gain ground despite the environmental tolls.

2) Prices stay in the $100-$140 per barrel range. In this case, demand remains low in the developed world (U.S. primarily) while emerging market demand remains solid with China and India imports coming back to normal. Disruption of supplies is limited.

3) Prices go toward $200 per barrel. This doomsday scenario can be caused by any of several factors, including destabilization or war in the Middle East, more severe supply disruptions in Nigeria or in the oil distribution networks due to terrorists or pirates, or the weather could cause massive disruptions. In this scenario, demand in the dveloping world could remain robust while developed nations would be hurt financially.

The 2007-2009 global recession has triggered scenario #1. Oil prices will shoot-up again within a week of Aug. 13 and correlate within a month of the Aug.27 7-year cycle to Neptune in the U.S. chart.