Friday, October 22, 2004

Oil Price Prediction With The Elliott Wave Theory - #1

I'm embarking on an analytical exercise to test the Elliott Wave Theory as applied to oil price prediction. The chart patterns since 2000 appear to align well with this theory. The price patterns in the late 70's oil boom and the associated "rig count" provided patterns very typical of Elliott Waves. I present my first prediction of a potential future pattern or trend. The 5th wave appears to be near completion with an A-B-C correction to follow with a price correction to the $30-35/barrel range.

Click on the image for a larger version.

Monday, October 11, 2004

Hugging Sheiks

A former colleague of mine who is the editor of the Houston Geological Society published an informative article on the history of the U.S. and Saudi Arabian oil dependence. I thought that you might find it interesting. After watching Fahrenheit 9/11 last night, I think everyone needs to realize that we've been hugging sheiks through many administrations.....

Election Issues in the Context of Petroleum and History
Art Berman, Editor, Houston Geological Society, October 2004

Key topics for the upcoming presidential debate and election directly relate to petroleum: the war in Iraq and the economy. As the situation in Iraq becomes increasingly complex and uncertain, the issues and the debate become more diffuse. I do not mean to diminish the importance or urgency of the current civil war in that country or differing views of our conduct there. As earth scientists, however, we surely must understand that petroleum
supply is and has always been the basis for everything we do in the Middle East since at least the end of World War II. The economy, likewise, is a complicated subject that consists of a tangle of important and inter-dependent issues that can obscure or over-shadow what cannot be disputed: American dependence on imported oil is an unavoidable aspect of the economy in this country and that is nothing new either. The fact that the price of oil is presently at its highest sustained level in decades is not disputed nor is its affect on the cost of doing business in America. As earth scientists we
understand that the need to import oil is unavoidably related to well-established and painfully clear statistical tendencies about basin and province maturity, and is not something that can be fixed by some change in domestic energy policy. This month I will focus on the first of these subjects, namely the war in Iraq and Afghanistan though not from a political but, rather, a geological and historical perspective. To fully understand current events in Iraq and the Middle East it is first necessary to view the roots of the conflict in a broader context than simply as part of the aftermath of the September 11,
2001 attacks on New York and Washington. As World War II drew to a close President Franklin Roosevelt recognized that the United States would play the major role in the Middle East as a warweakened and empire-weary United Kingdom, France and
Germany abdicated positions they had held for nearly 150 years in foreign affairs. Roosevelt appointed State Department economic advisor Herbert Feis to head a study on American strategic policy in a post-war world. Feis’s study concluded that U.S. access to oil was the primary reason for victory over German and Japanese forces in World War
II. Oil had powered the vast network of tanks, ships, aircraft and personnel carriers that gave allied forces the competitive edge over their adversaries who lacked sufficient access to petroleum. Germany and Japan had, quite simply, run out of enough oil to continue the war effectively. It had been, ironically, access to petroleum that lead to Japan’s attack on Pearl Harbor in December 1941. By the late 1930s the Japanese Empire had largely accomplished its territorial objectives but wanted to take Indonesia for its oil and rubber, both critical parts of a military empire that ran on petroleum-powered ships, planes and land vehicles. Indonesia was a Dutch colony and Japan’s leaders worried
that the United States’ treaties with the Netherlands might bring the United States into a war against Japan if Indonesia were attacked. In an odd quirk of logic, Japan decided to make a pre-emptive strike on U.S. forces at Pearl Harbor to prevent war with the United States. Feis and his colleagues recognized that the Kingdom of Saudi Arabia held the world’s most plentiful source of petroleum. They also recognized the political instability of the Kingdom and concluded that the United States must assume responsibility for
the support and defense of Saudi Arabia in return for a guarantee of oil supplies. On his return from the Yalta Conference in February 1945 Roosevelt met with King Abd al-Aziz Ibn Saud, the founder of the modern Saudi regime, on a U.S. warship in the Suez Canal. Roosevelt gave the King a promise of U.S. protection in return for privileged American
access to Saudi oil, an arrangement that remains in full effect today and constitutes the core of the U.S.-Saudi relationship and American policy in the Middle East. Fast-forward to 1979 when a series of events raised the U.S.-Saudi relationship to a new level of strategic importance. In 1979 the Soviet Union invaded Afghanistan, the Shah of Iran was overthrown by anti-government forces, and Islamic militants staged a short-lived rebellion in Mecca in Saudi Arabia. President Carter stated that the United States would view any action that threatened supplies of oil from the Middle East, and especially from
the Persian Gulf, as a threat to U.S. strategic interests with military force as a possible consequence. Carter established the Rapid Deployment Force that later evolved
into the U.S. Central Command in order to provide combat forces to the Persian Gulf Region if necessary. Carter authorized covert U.S. actions to undermine the Soviet presence in Afghanistan. The Saudi government was deeply involved in both of these initiatives and was responsible for providing both funds and manpower for the anti-Soviet effort. It was during this period that Osama bin Laden went to Afghanistan to fight with
the mujahedin rebels against the Soviet occupying forces. The United States and Saudi Arabia spent more than $3 billion under Carter and Reagan in arms and support to the anti-Soviet insurgents in Afghanistan (Klare, 2001). The main aim of the first Persian Gulf War under George H.W. Bush was to protect Saudi Arabia from threats of attack by
Saddam Hussein. Kuwait was the catalyst but really a secondary cause for the invasion of Iraq. In fact, there are tape recordings of an interview on July 25, 1991, between U.S. ambassador April Glaspie and Saddam Hussein in which she gave him diplomatic
permission to invade Kuwait. "We have no opinion on your Arab-Arab conflicts," the recorded transcript reports Glaspie saying, "such as your dispute with Kuwait. Secretary [of State James] Baker has directed me to emphasize the instruction … that Kuwait is not associated with America" (Cole, 1999). Some argue that Hussein was baited into attacking Kuwait to justify armed action against Iraq for the protection of Saudi Arabia.
Hussein invaded Kuwait on August 2, 1999. On August 4, 1991, Bush convened his top advisors at Camp David and decided to take military action to defend the Saudi kingdom against possible Iraqi attack. Secretary of Defense Dick Cheney went to Riyadh, Saudi Arabia, and got permission to place U.S. ground forces in that country and to use Saudi bases for air strikes against Iraq.
Following the Persian Gulf War Osama bin Laden focused his efforts on two stated objectives: expulsion of U.S. military forces from Saudi Arabia and overthrow of the Saudi regime. "Both of these goals put bin Laden in direct conflict with the United
States. It is this reality, more than any other, that explains the terrorist strikes on U.S. military personnel and facilities in the Middle East, and key symbols of American power in New York and Washington" (Klare, 2001). The current "War on Terror" did not begin with the September 2001 attacks on the United States. The first attack on the World
Trade Center in 1993 marks the beginning of the current struggle. Subsequent attacks in Saudi Arabia, Kenya, Tanzania and Yemen in the period 1995–1998 were part of a plan by bin Laden to destroy the U.S.-Saudi alliance begun in 1945. Neither President
George W. Bush nor Osama bin Laden will directly reference the present conflict to this decade-long dynamic. Make no mistake, however, that current events in Afghanistan and Iraq have far more to do with maintaining American supplies of oil from the Middle East and protecting the Saudi regime from overthrow than they do with the events of September, 2001. Consider the devastating economic effects of the four-day hiatus
in petroleum usage following the September 11 attacks. Imagine the far greater impact of an extended interruption in petroleum supply on the U.S. economy. Every American president knows this: if petroleum supply is interrupted, the American economy
will crater; whatever other issues may seem important in a given election, they will all disappear if there is not enough petroleum to keep the economy running at the break-neck level that we all assume is normal.
The U.S. occupation of Iraq and Afghanistan is part of a 60-year old policy to ensure oil supplies from the Middle East and to protect the Saudi regime from overthrow or civil war that might interrupt that supply. The war that our enemy is fighting is to make the West go away; it is, in effect, a fantasy ideology (Harris, 2004). Somewhere, however, embedded in the Al-Qaeda strategy is overthrow of the current regime in Saudi Arabia and disruption of the U.S.-Saudi alliance; that is the point of convergence that we must recognize if we want to understand this war. As geoscientists we should understand better than most the geo-politics of oil. e know that in the United States we cannot
begin to supply ourselves with enough oil to fuel our needs even if we open ANWR and find a Prudhoe Bay-sized accumulation (more on that next month!).
We are irrevocably dependent on the Middle East for oil and there is no way that is going to change. Whether we agree with the specifics of decisions taken on Iraq, Afghanistan, Israel or any other topic in the Middle East we must view them in terms of a long-term strategy and policy that center on maintaining oil supply to the United States. We must also realize that, whatever our political leanings, an interruption in oil supply would make all of us wish we had done something more deliberate and forceful to prevent it. In the hindsight of a U.S. economy without adequate petroleum supply the niceties of international law and the United Nations, self-determination of sovereign nations, human rights and weapons of mass destruction would seem weak excuses for allowing ourselves to miss the point of what has always been the focus in the Middle East since at least 1945: petroleum. ?

• Cole, Carleton, 1999, The home forum: Christian Science Publishing
• Klare, Michael T., 2001,The geopolitics of war (United States petroleum
interests in Saudi Arabia and Osama bin Laden): The Nation, Nov. 5, 2001, v. 273, no. 14, p. 11.
• Harris, Lee, 2004, Civilization and its enemies: the next stage of history:
Free Press, New York, 232 p.