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         Daily Blog - Tiger Software

                                    July 23, 2007

           Oil Prices and The Stock Market

                   Will US Launch An Attack on Iran?

William Schmidt,     - Tiger Software's Creator
      (C) 2007 William Schmidt, Ph. D.  - All Rights Reserved. 

      No reproductions of this blog or quoting from it
      without explicit written consent by its author is permitted.

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      to william_schmidt@hotmail.com

                                                                                                                   Check current Oil Prices

Oil Prices and The Stock Market: 1970-2006
                        Will US Attack Iran?

                        At the start of Bush's decision to have the US attack Iraq, light crude was priced under $25/bar.
              It has now nearly tripled.  The new British Prime Minister, Gordon Brown, recently declined to reject outright
              military action against Iran.  Prospects of such an attack would almost certainly cause oil futures to
              go through the roof.  Is such an attack likely?  Investors will want to read what I have quickly gathered
              on the internet and then do their own research,  Watching crude oil futures will likely give investors a better
              way to see this coming than listening to Bush or Brown.

                        It is said that rising oil prices act like a tax on consumers. Money spent by consumers on oil
               is not spent on other goods and services. So, profits and sales in many other businesses are squeezed..
               Far too simple, this overlooks the additional buying power that oil companies and their employees may
               have and use.  I see this each time I get an order from someone in Texas.

                        A bigger danger is that oil producing countries may stop accepting dollars for payment, because
               the dollar becomes too weak.  Iran announced this April that they would accept only Euros or Yen.  The US
               has a current net
-$862,300,000,000.00  in its international trades of goods and services. When OPEC
               was formed, all the OPEC countries agreed that they would only sell oil for dollars and dollar
               denominated securities. In other words, if you wanted to buy oil from an OPEC country, you had to
               buy dollars first.  This created a ready demand for dollars.  And OPEC countries tended to invest
               much of the "petro dollar wealth" back in the US.  The run-up in oil prices since 2002 thus actually
               boosted the US stock market and its economy.  If OPEC changed their rules and allowed other
               countries to buy in another currency, it would mean far higher interest rates and hyper-inflation in the US.

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                           Read William Clark's Petroldollar Warfare.  

                          "It is now obvious the invasion of Iraq had less to do with any threat from Saddam's long-gone
               WMD program and certainly less to do to do with fighting International terrorism than it has to do with
               gaining strategic control over Iraq's hydrocarbon reserves and, in doing so, maintain the U.S. dollar as
               the monopoly currency for the critical international oil market. Throughout 2004, information provided
               by former administration insiders revealed the Bush/Cheney administration entered into office with the
               intention of toppling Saddam Hussein.....

                         "Candidly stated, "Operation Iraqi Freedom" was a war designed to install a pro-U.S. government
               in Iraq, establish multiple U.S military bases before the onset of global Peak Oil, and to reconvert Iraq
               back to petrodollars while hoping to thwart further OPEC momentum towards the euro as an alternative
               oil transaction currency. [ However, subsequent geopolitical events have exposed neoconservative
               strategy as fundamentally flawed, with Iran moving towards a petroeuro system for international oil
               trades, while Russia evaluates this option with the European Union."
               (Source: http://www.energybulletin.net/7707.html   )

                                          War with  Iran

                          An attack on Iran is by, no means, unlikely.  Pentagon war planning has started.   Administration
               planning seeks to a regime change in Iran by covert means.  Seymour Hersch wrote in 2005 in the New
                         "In my interviews [with former high-level intelligence officials], I was repeatedly told that the
                          next strategic target was Iran. Everyone is saying, "You can't be serious about targeting Iran.
                          Look at Iraq," the former [CIA] intelligence official told me. But the [Bush administration officials]
                          say, "We've got some lessons learned , not militarily, but how we did it politically. We're not
                          going to rely on agency pissants? No loose ends, and that?s why the C.I.A. is out of there."

                An article in The American Conservative by intelligence analyst Philip Giraldi should be read.
                "In Case of Emergency, Nuke Iran," suggested the resurrection of active U.S. military planning against
                 Iran" but with the shocking disclosure that in the event of another 9/11-type terrorist attack on U.S. soil,
                Vice President Dick Cheney?s office wants the Pentagon to be prepared to launch a potential tactical
                 nuclear attack on Iran ? even if the Iranian government was not involved with any such terrorist attack
                against the U.S.: (Source: http://www.energybulletin.net/7707.html )

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Military solution back in favour as Rice loses out
                        President not prepared to leave conflict unresolved."   

                                       Ewen MacAskill in Washington and Julian Borger
                                              Guardian (UK)  Monday July 16, 2007

"The balance in the internal White House debate over Iran has shifted back in favour of military
                 action before President George Bush leaves office in 18 months, the Guardian has learned.

                The shift follows an internal review involving the White House, the Pentagon and the state department
                over the last month. Although the Bush administration is in deep trouble over Iraq, it remains focused
                on Iran. A well-placed source in Washington said: "Bush is not going to leave office with Iran still in limbo...
Almost half of the US's 277 warships are stationed close to Iran, including two aircraft carrier groups.
                 The aircraft carrier USS Enterprise left Virginia last week for the Gulf. A Pentagon spokesman said
                  it was to replace the USS Nimitz and there would be no overlap that would mean three carriers in
                 Gulf at the same time."


                                                      Crude Oil: 2002-2007
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                        The current yearly chart of crude oil (using the perpetual contract data from Dial Data) shows
             an inverted head and shoulders pattern.  The height of the pattern before prices broke past
             the pattern's neckline in June was 15 points, measuring from the January low at 51 straight up
             to the neckline there mat 66.  Prices broke out above the neckline at 70; so, if we add 15 to 70
             we get $85.   This is the classic way technicans set minimum price objectives.  See Edwards and Magee,
             Technical Analysis of Stock Trends.

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                       Probably, the price target is better set conservatively at 83-85.  Either way, crude oil
             should rise, at a minimum another 10% in the months ahead.  The surpassing $80 will probably
             spook the stock market.  So we should be careful. As crude oil goes up, inflationary numbers
             start giving the Fed more ammunition to raise interest rates.  In truth,  the Fed is less concerned about
             inflation, per se, and more concerned with what level of interest rates it must set to get foreigners
             to buy bonds denominated in sagging US dollars.  Friday the Euro and the British Pound made 5 year highs
             versus the dollar.  The Japanese yen moved back above its key 50-day mvg, avg, 

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                     There are probably many other relationships between crude oil prices and
            and the stock market than I can  point out below.  But one lesson  is that the steep
            rise in crude oil, from $14/bar to $39/bar in a little more than a year after the Iranian
            revolution in 1979 set off inflation and much higher interest rates in the US.   Steep runups
            in crude oil prices coincided with bear markets in 1973-1974 and 1990.  Between 1979
            and 1980 there were two corrections (mini-crashes) of more than 10% in the DJI and
            a full-fledged bear market from early 1981 to July 1983.  The bear market stemmed
            directly from very high interest rates, which were a result of the enormous rise in oil
            and other commodities.    The reverse relationship has taken place between March 2003 and
            July 2007: oil prices and stock prices have risen together.

                                                    Different Seasonalities.

                    Whereas the stock market tends to be strongest from November to April, oil prices
             tend to peak in the summer when demand is greatest and when middle-Eastern wars tend
             to happen. 

                                  Different Countries and Sectors Are Affected Differently.
                             Source: http://www.gold-eagle.com/editorials_03/mauldin122203.html

  • Asia tends to be more insulated from oil price shocks, than Europe, by a factor of
    nearly 2-to-1, with Germany, Switzerland, Italy, Sweden, and the Netherlands being
    more vulnerable ... against which Japan, Singapore, and Hong Kong are LESS
    vulnerable, stock-market wise.
  • The United States is the second MOST 'vulnerable', in terms of the potential negative
    influence on the broader stock market, via rising oil prices ... second only to the Netherlands.
    Further, within the dynamic as influences the US stock market, we note the following conclusions
    reached by the report:
  • Cyclical Services are MOST negatively influenced when oil prices rise.
  • Cyclical Consumer Goods are second most negatively influenced.
  • Financials ... third most negatively influenced stock market sector.


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                                            DJI - 1970-2006
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The price data graphed above are in nominal terms, i.e., they are in "dollars-of-the-day" and have not been adjusted for inflation. Clicking the picture above will enable you to access oil prices in real terms that are adjusted for inflation. Historical and forecast real and nominal crude oil and gasoline price information is maintained on a more frequent basis on the Short Term Energy Outlook Webpage .

1. OPEC begins to assert power; raises tax rate & posted prices

2. OPEC begins nationalization process; raises prices in response to falling US dollar.

3. Negotiations for gradual transfer of ownership of western assets in OPEC countries

4. Oil embargo begins (October 19-20, 1973)

5. OPEC freezes posted prices; US begins mandatory oil allocation

6. Oil embargo ends (March 18, 1974)

7. Saudis increase tax rates and royalties

8. US crude oil entitlements program begins

9. OPEC announces 15% revenue increase effective October 1, 1975

10. Official Saudi Light price held constant for 1976

11. Iranian oil production hits a 27-year low

12. OPEC decides on 14.5% price increase for 1979

13. Iranian revolution; Shah deposed

14. OPEC raises prices 14.5% on April 1, 1979

15. US phased price decontrol begins

16. OPEC raises prices 15%

17. Iran takes hostages; President Carter halts imports from Iran; Iran cancels US contracts; Non-OPEC output hits 17.0 million b/d

18. Saudis raise marker crude price from 19$/bbl to 26$/bbl

19. Windfall Profits Tax enacted

20. Kuwait, Iran, and Libya production cuts drop OPEC oil production to 27 million b/d

21. Saudi Light raised to $28/bbl

22. Saudi Light raised to $34/bbl

23. First major fighting in Iran-Iraq War

24. President Reagan abolishes remaining price and allocation controls

25. Spot prices dominate official OPEC prices

26. US boycotts Libyan crude; OPEC plans 18 million b/d output

27. Syria cuts off Iraqi pipeline

28. Libya initiates discounts; Non-OPEC output reaches 20 million b/d; OPEC output drops to 15 million b/d

29. OPEC cuts prices by $5/bbl and agrees to 17.5 million b/d output – January 1983

30. Norway, United Kingdom, and Nigeria cut prices

31. OPEC accord cuts Saudi Light price to $28/bbl

32. OPEC output falls to 13.7 million b/d

33. Saudis link to spot price and begin to raise output – June 1985

34. OPEC output reaches 18 million b/d

35. Wide use of netback pricing

36. Wide use of fixed prices

37. Wide use of formula pricing

38. OPEC/Non-OPEC meeting failure

39. OPEC production accord; Fulmar/Brent production outages in the North Sea

40. Exxon's Valdez tanker spills 11 million gallons of crude oil

41. OPEC raises production ceiling to 19.5 million b/d – June 1989

42. Iraq invades Kuwait

43. Operation Desert Storm begins; 17.3 million barrels of SPR crude oil sales is awarded

44. Persian Gulf war ends

45. Dissolution of Soviet Union; Last Kuwaiti oil fire is extinguished on November 6, 1991

46. UN sanctions threatened against Libya

47. Saudi Arabia agrees to support OPEC price increase

48. OPEC production reaches 25.3 million b/d, the highest in over a decade

49. Kuwait boosts production by 560,000 b/d in defiance of OPEC quota

50. Nigerian oil workers' strike

51. Extremely cold weather in the US and Europe

52. U.S. launches cruise missile attacks into southern Iraq following an Iraqi-supported invasion of Kurdish safe haven areas in northern Iraq.

53. Iraq begins exporting oil under United Nations Security Council Resolution 986.

54. Prices rise as Iraq's refusal to allow United Nations weapons inspectors into "sensitive" sites raises tensions in the oil-rich Middle East.

55. OPEC raises its production ceiling by 2.5 million barrels per day to 27.5 million barrels per day. This is the first increase in 4 years.

56. World oil supply increases by 2.25 million barrels per day in 1997, the largest annual increase since 1988.

57. Oil prices continue to plummet as increased production from Iraq coincides with no growth in Asian oil demand due to the Asian economic crisis and increases in world oil inventories following two unusually warm winters.

58. OPEC pledges additional production cuts for the third time since March 1998. Total pledged cuts amount to about 4.3 million barrels per day.

59. Oil prices triple between January 1999 and September 2000 due to strong world oil demand, OPEC oil production cutbacks, and other factors, including weather and low oil stock levels.

60. President Clinton authorizes the release of 30 million barrels of oil from the Strategic Petroleum Reserve (SPR) over 30 days to bolster oil supplies, particularly heating oil in the Northeast.

61. Oil prices fall due to weak world demand (largely as a result of economic recession in the United States) and OPEC overproduction.

62. Oil prices decline sharply following the September 11, 2001 terrorist attacks on the United States, largely on increased fears of a sharper worldwide economic downturn (and therefore sharply lower oil demand).  Prices then increase on oil production cuts by OPEC and non-OPEC at the beginning of 2002, plus unrest in the Middle East and the possibility of renewed conflict with Iraq.

63. OPEC oil production cuts, unrest in Venezuela, and rising tension in the Middle East contribute to a significant increase in oil prices between January and June.

64. A general strike in Venezuela, concern over a possible military conflict in Iraq, and cold winter weather all contribute to a sharp decline in U.S. oil inventories and cause oil prices to escalate further at the end of the year.

65. Continued unrest in Venezuela and oil traders' anticipation of imminent military action in Iraq causes prices to rise in January and February, 2003.

66. Military action commences in Iraq on March 19, 2003. Iraqi oil fields are not destroyed as had been feared. Prices fall.

67. OPEC delegates agree to lower the cartel’s output ceiling by 1 million barrels per day, to 23.5 million barrels per day, effective April 2004.

68. OPEC agrees to raise its crude oil production target by 500,000 barrels (2% of current OPEC production) by August 1—in an effort to moderate high crude oil prices.

69. Hurricane Ivan causes lasting damage to the energy infrastructure in the Gulf of Mexico and interrupts oil and natural gas supplies to the United States. U.S. Secretary of Energy Spencer Abraham agrees to release 1.7 million barrels of oil in the form of a loan from the Strategic Petroleum Reserve.

70. Continuing oil supply disruptions in Iraq and Nigeria, as well as strong energy demand, raise prices during the first and second quarters of 2005.

71. Tropical Storm Cindy and Hurricanes Dennis, Katrina, and Rita disrupt oil supply in the Gulf of Mexico.

72. In response to the hurricanes, the Department of Energy provides emergency loans of 9.8 million barrels and sold 11 million barrels of oil from the SPR.

73. Militant attacks in Nigeria shut in more than 600,000 barrels per day of oil production beginning in February 2006.

74. OPEC members agree to cut the organization’s crude oil output by 1.2 million barrels per day effective November 1, 2006. In December, the group agrees to cut output by a further 500,000 barrels per day effective February 2007.

Source: http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html

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