OPEC Seeks to Destroy US Oil Production, Could Another Recession be on the Way?

TND Guest Contributor: Nathan McDonald, Sprott Money Blog |

The oil market has been rocked in recent weeks. OPEC seems bent on the destruction of US shale oil production, as it sees it as a direct threat to its current cartel over the price of oil.

OPEC’s decision to keep the pumps flowing has sent markets across the board spinning, with oil dropping like a stone to levels not seen since 2009, as global demand dropped due to the then current ongoing economic crisis.

Take note that oil was near $110 dollars per barrel in June, at current writing it rests at $67.60 per barrel, a drastic drop by any measure.

It is very likely that oil will hold its ground at these levels, as like gold, a huge influx of demand is going to come from the market. At these price levels you can rest assured that China is buying with both hands, adding to their ever growing reserve of hard assets.

A question that has puzzled the markets, is what did the United States do behind the scenes to offend the oil cartel so badly? It is well known, that OPEC has been in cooperation in one shape or another with the United States since its creation in 1960.

I doubt that they are simply fearing the booming shale production in the United States. Likely this story goes much deeper, yet the reasoning remains unknown.

Luckily for consumers and individuals around the world, this price drop in oil can be seen as a positive, as they already see savings at the pump and on heating cost. This is essentially a direct stimulus to the consumer. One that actually makes a difference, unlike those seen with the “too big to fail” bank bailouts.

Another angle that needs to be looked at is the fact that a significant price drop in oil typically indicates an oncoming recession. Although the man on the street in my opinion never left the depression started in the 2008 crisis, it is very likely that the broad markets could be once again entering into another recession.

This truly has to have central banks on edge, as the tools used in the last recession are largely still in play, such as near zero interest rates and stimulus programs that continue to flood the market with fiat money.

Perhaps the FED will look at this as the excuse they need to enter into a new round of Quantitative easing. As discussed before, to have any effect, this new round of QE would have to be significantly larger than any ever seen before.

This action could send fiat currencies around the world spinning out of control and gold to levels never before seen. The future is unknown and yet to be seen, much hinges on the actions of those seen as “in charge” and their willingness to travel down this road towards hyperinflation.

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Nathan McDonald writes for Sprott Money Blog, part of Sprott Money Ltd., a leading precious metals dealer selling gold coins, silver coins and bullion bars online and over the phone. As one of Canada’s largest owners of gold and silver bullion, the company’s goal is to facilitate ownership of precious metals no matter how big or small the portfolio.

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