Here’s a fact I bet you didn’t know…
Every $1 upward movement in the price of oil increases the earnings of BHP’s petroleum division by US$64 million.
Isn’t that incredible?
Well, if I’m right in the following analysis…
Oil is set to go from US$67…to $150 per barrel.
That’s a lot of extra potential extra zeroes for BHP.
So how will we get there?
Well…let me ask you a question.
What do you know about the velocity of money?
I know, I know…a bit analytical for a Saturday.
But hear me out. Because it’s one of the most fascinating subjects in economics theory.
What’s more, it shows you why oil prices, after years in the doldrums, could be about to make a shocking resurgence.
But you’ll rarely hear it discussed in the news.
That’s why it will hit everyone by surprise.
Market commentators seldom mention it.
And investors are mostly clueless about it.
Yet this theory is key to understanding why oil prices, and the global economy for that matter — despite efforts by the financial wardens to conceal it — is rife with inflation.
This week oil hit a three-year high. I believe this is a sign of things to come.
In short, oil could be on the cusp of a major price breakout.
To explain, we must come back to what economist refer to as the ‘velocity of money’.
Economists always overcomplicate things when explaining this concept, but it’s actually a very simple to wrap your head around.
Imagine you’re sitting around the dinner table with nine of your closest relatives…
In your hand is a $1 coin. No one else has any money in possession. In this example, your dollar represents the total money supply in your family.
If you stick that dollar in your pocket, you’d end up with what’s known as ‘zero velocity’.
This is no different to keeping money in the bank. All it means is that you haven’t given the dollar to anyone in exchange for something else.
No transactions means no velocity.
But let’s look at this from another angle…
Say you turned to the person seated to your right and handed them the $1 coin.
What you’d find now is that the velocity of money would’ve increased to 1.
Now let’s take this a step further…
As this coin gets passed around the table, every new change of hands adds an additional number to the velocity.