For a minute there I thought I had to get off my couch, when all the while the fact is we don't have to do anything much but keep things afloat for just a few decades more! In fact, we'd best shut up about PO, because if our offspring finds out we knew about it all along, they'll turn and wring our necks come 2036!
Posted: Thu Jun 05, 2008 10:57 am Post subject: Dollar crisis = Oil crisis.
Again, I'm to this debate, so bear with me if this is old news.
1. After reading various sources for the past 2 weeks my conclusion is that at least 30% of current oil price is due to weak US dollar;
2. This calculation is congruent with the view of most serious analysts who hold that oil should be running at approx. $90 - $100 per barrel at the present time, instead of $125+;
3. Furthermore, this view is reinforced by the inverse correlation between US dollar strength and oil prices (e.g.--today the ECB postulated it may raise interest rates, and the US dollar fell. What happened? Oil prices rose higher);
4. Serious economists such as Nobel winner Robert Mundell are warning of a dollar collapse within 5 years. This is nothing new--Volcker et al have been voicing same concerns for some time now;
5. Therefore, given the above correlation, what can be done to stabilize oil prices over the short to medium term (i.e.--5 to 10 years)? De-peg oil prices from the dollar?
Posted: Thu Jun 05, 2008 11:06 am Post subject: Re: Dollar crisis = Oil crisis.
NoWorries wrote:
5. Therefore, given the above correlation, what can be done to stabilize oil prices over the short to medium term (i.e.--5 to 10 years)? De-peg oil prices from the dollar?
Why stabilize oil prices?
High prices are good. They are the only thing that will provoke a change in our usage habits.
And they prevent the real danger which is supply gaps. When oil and gas are not available at any price you have disruption.
Rather, welcome high oil prices. They may be painful. But so are push-ups. Painful, but good for you.
Posted: Thu Jun 05, 2008 11:16 am Post subject: Re: Dollar crisis = Oil crisis.
NoWorries wrote:
Again, I'm to this debate, so bear with me if this is old news.
1. After reading various sources for the past 2 weeks my conclusion is that at least 30% of current oil price is due to weak US dollar;
I couldn't disagree more. I think oil is underpriced by 40-100 dollars a barrel. Maybe more.
NoWorries wrote:
2. This calculation is congruent with the view of most serious analysts who hold that oil should be running at approx. $90 - $100 per barrel at the present time, instead of $125+;
"Most serious"? Are you serious? Or are you discounting the somewhat joking analysts?
If an "analyst" does not understand that Peak Oil is here, now, then that "analyst's" opinion is worthless.
NoWorries wrote:
3. Furthermore, this view is reinforced by the inverse correlation between US dollar strength and oil prices (e.g.--today the ECB postulated it may raise interest rates, and the US dollar fell. What happened? Oil prices rose higher);
No idea what you are attempting to say here.
The dollar is devaluing, so oil gets more expensive as a result, given that everything else remains unchanged. We agree.
So if the dollar loses 10% in value, the price of oil goes up about 10%. Ok. But that only explains a very small part of the quintupling of oil in the last 7 years.
NoWorries wrote:
4. Serious economists such as Nobel winner Robert Mundell are warning of a dollar collapse within 5 years. This is nothing new--Volcker et al have been voicing same concerns for some time now;
I was worrying about a dollar collapse 10 years ago, and I didn't need a nobel prize to see it coming.
NoWorries wrote:
5. Therefore, given the above correlation, what can be done to stabilize oil prices over the short to medium term (i.e.--5 to 10 years)? De-peg oil prices from the dollar?
Why on earth are you on PO.com?
You cannot "stabilize" oil prices because oil production is dropping faster than demand.
If you don't believe that we are at PO, then we don't need to have this conversation - all is well and go on with your life.
If you do believe that PO is now, then why are you dancing around the subject with digressive discussions of dollar strength? _________________ Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.
Posted: Thu Jun 05, 2008 11:27 am Post subject: Re: Dollar crisis = Oil crisis.
Cahsmere--Thanks for contributing. Again, I'm new to this debate, and new to this forum. And with respect, monetary strength is entirely apropos to the discussion, and is not a "digression" at all.
Joined: Mar 07, 2007 Posts: 288 Location: Houston, TX
Posted: Thu Jun 05, 2008 11:36 am Post subject: Re: Dollar crisis = Oil crisis.
Here is my take on this
China built up a reserve of more than 1 trillion dollars at the expense of USA. Cheap imports and lack of env. reg in China lead this to happen in the last 30 years or so.
With that kind of money, China has the power to subsidize gas and sell it for $2.49/gal thus artificially increasing the consumption. Same gas is selling for $3.20 in the world markets as of today.
As long as China has huge reserves like 1 trillion dollars and more, they will keep subsidizing gas and this will enable the system to import oil for the years to come.
From the USA's side we will have record trade deficits and maybe account deficits due to very high oil prices. Because the demand destruction is much much slower than the increase in the total bill we are paying for oil imports. Thus the record deficits will continue and as a result dollar will further decline. This is how I look at it.
Joined: Apr 07, 2005 Posts: 225 Location: West of Chicago
Posted: Thu Jun 05, 2008 1:00 pm Post subject: Re: Dollar crisis = Oil crisis.
NoWorries -
Interesting thoughts -- I think if you strip away the layers of talk on top of the root of the issue (weak dollar, possible demand destruction, ANWR, alternatives) demand is outstripping supply without replacing depleting supplies.
Were I smart enough or had enough caffeine in me, I could probably develop a passable proof that if you stabilized oil supplies, you could stabilize the dollar, since we work with petrodollars. There are those here who are better than I am at this.
As the economy and undersupply cause us to unwind, it seems to me that they feed off each other with unrelenting downward pressure without the possibility of natural stabilization. If you put in artificial stabilization (price controls) we know from history that politicians can get elected just before the rest of the market goes to hell and the problem gets worse.
Joined: Dec 08, 2004 Posts: 1539 Location: Nez Perce Nation
Posted: Thu Jun 05, 2008 1:20 pm Post subject: Re: Dollar crisis = Oil crisis.
NoWorrys wrote:
"1. After reading various sources for the past 2 weeks my conclusion is that at least 30% of current oil price is due to weak US dollar;"
I agree some of the high price is because of the devaluation of the dollar.
NoWorrys wrote:
"2. This calculation is congruent with the view of most serious analysts who hold that oil should be running at approx. $90 - $100 per barrel at the present time, instead of $125+"
So $100/barrel oil is OK with you? It doesn't alarm you? _________________ "Modern Agriculture is the use of land to convert petroleum into food."
-- Albert Bartlett
"It will be a dark time. But for those who survive, I suspect it will be rather exciting."
-- James Lovelock
Posted: Thu Jun 05, 2008 1:32 pm Post subject: Re: Dollar crisis = Oil crisis.
Hi all--Thanks for your replies.
Domus--I would go farther. I would say the rally in oil market we've seen since the Fall is directly tied to US monetary policy. Here's a quote from the Bloomberg wire about 20 minutes ago:
...ECB policy makers have not followed the Federal Reserve and the Bank of England in cutting interest rates. Oil rose 52 percent since Sept. 18 when the Fed began curbing rates to bolster an economy already reeling from a credit crisis. The Euro advanced 11 percent against the dollar in the period.
``The moment Trichet opened his mouth we saw the dollar reverse course and oil jump,'' said Phil Flynn, senior trader at Alaron Trading Corp. in Chicago. ``Monetary policy has been the primary driver of this market this year.''
As for $100/b oil, yes I think that is sustainable. But the problem with that price point is that it leaves very little -- if any -- room for spikes due to weather, geopolitical events, etc. Put another way: We've played out our margin.
Look, all I'm saying is that I'm not sure if the current spike is really due to supply/demand factors, or whether it has more to do with the weakening US economy (which is a crisis unto itself). Confluence, basically.
Either way, I think oil must go higher over next 5 years, since I do believe a dollar crisis is probable. But that is different from saying that I believe Peak Oil is here. So what we're witnessing may be a "False Peak" that will prepare us for the actual peak in 10 years' time.
However, the effects of $200/b within the next 2 years will be severe, no matter what the cause.
Posted: Thu Jun 05, 2008 2:05 pm Post subject: Re: Dollar crisis = Oil crisis.
Long,massive and always growing Import trade deficit + the World's most moronic liberal residential underwriting guidelines= the rest of the world doesnt consider the USA as a safe investment haven anymore= weak dollar= higher oil prices.
Joined: Jun 03, 2004 Posts: 127 Location: Great Britain
Posted: Thu Jun 05, 2008 4:13 pm Post subject: Re: Dollar crisis = Oil crisis.
Looking at the 1 year history of the US dollar index, the dollar has fallen by 12% in the last year.
Looking at the 1 year history of the Nymex oil price, it has risen by 81%.
So if the dollar had remained constant for the last year, the oil price would be $113 instead of $128. Not a big difference, so most of the oil price increase must be other factors.
Joined: Mar 26, 2008 Posts: 1027 Location: Seattle
Posted: Thu Jun 05, 2008 8:32 pm Post subject: Re: Dollar crisis = Oil crisis.
yull wrote:
Looking at the 1 year history of the US dollar index, the dollar has fallen by 12% in the last year.
Looking at the 1 year history of the Nymex oil price, it has risen by 81%.
So if the dollar had remained constant for the last year, the oil price would be $113 instead of $128. Not a big difference, so most of the oil price increase must be other factors.
Using the same kind of reasoning . . .
World oil consumption has only risen about 1.2% in the past year, so the price of oil should only have risen about 1.2%, plus adjustment for the value of the dollar.
Since the price of oil has risen by more than 1.2% plus adjustment for the decline of the dollar, there must be other reasons for the increase in the price of oil aside from consumption levels and the value of the dollar. _________________ Abundance - what a concept!
Posted: Fri Jun 06, 2008 6:44 pm Post subject: Re: Dollar crisis = Oil crisis.
OilFinder2 wrote:
Using the same kind of reasoning . . .
World oil consumption has only risen about 1.2% in the past year, so the price of oil should only have risen about 1.2%, plus adjustment for the value of the dollar.
Since the price of oil has risen by more than 1.2% plus adjustment for the decline of the dollar, there must be other reasons for the increase in the price of oil aside from consumption levels and the value of the dollar.
Your example is fallacious for consumption increases do not equal price increases, as it does not take into account supply factors, only demand.
Posted: Sat Jun 07, 2008 8:45 am Post subject: Re: Dollar crisis = Oil crisis.
I agree with you, although do you belive it to be possible that it can actually be a combination of both the devaluation of the dollar and supply/demand.
In previous years OPEC would flood the market with oil and this would drive prices down, although now Saudi Arabia and the rest of OPEC are unable to increase production enough to push prices lower, so although we may still have enough supply we no longer have a surplus. This limits the ability of OPEC countries to stabilize prices and to keep them low.
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