Posted: Fri Mar 14, 2008 8:04 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
The US consumes 25% of the world’s oil and as the dollar falls in value relative to other currencies, other international consumers - who account for 75% of oil consumption - are able to pay more dollars -but the same amount in their own currencies - for the same quantity of oil. Sellers adjust their prices to reflect this or limit production to protect the value of their assets.
The other factor is speculation. Investors buy oil futures contracts because they believe the dollar has further to fall relative to oil and other currencies. This speculation is not just going on in oil but it is, along with gold, silver and agricultural commodities, one of the most popular.
The oil price took of in August/September along with every other commodity. I would guess out of the approximately $40 increase since then, about $20-25 is due to the decline in the dollar. The rest was due to stock drawn downs and the potential war with Iran.
Posted: Sun Mar 16, 2008 5:14 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
Is this effect reinforced because the US dollar is the "dollar used to buy and sell oil"? Or is this the de facto case because the US represents such a large chunk of the market? Would there be more change if oil were bought/sold using Euros?
Posted: Sun Mar 16, 2008 7:52 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
It could be argued that the value of the dollar is affected by oil prices, or more specifically the energy return on a unit of imported oil. In practice both mechanisms are in effect and are resulting in positive re-inforcement of each other.
Posted: Sun Mar 16, 2008 11:11 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
Frank wrote:
Is this effect reinforced because the US dollar is the "dollar used to buy and sell oil"? Or is this the de facto case because the US represents such a large chunk of the market? Would there be more change if oil were bought/sold using Euros?
Clear, concise answer BTW - thanks.
I think the fact oil is priced in dollars is the most significant factor. If it were priced in EURO's it would change in relative cost dependant on the FX rates between countries own currencies and the EURO. The fact 75% of the market can buy oil for more dollars but for the same relative value in their own countries is the key.
Oil has, however, increased in other major currencies also, so there is real growth based on the tight supply/demand picture. It is not all about the dollar.
Joined: Feb 19, 2007 Posts: 94 Location: British Virgins
Posted: Wed Mar 26, 2008 6:53 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
The USA buck has fallen about 40% since January 2002. When valued against its major trading partners, the decline has been less severe. The devaluation of the dollar affords less purchasing power to the USA's crude trading partners when they use oil revenues to import from nations other than the USA. The debasement has been $21 over the last four years.
Best illustrated by the Barrel Meter at TrendLines:
Joined: May 10, 2007 Posts: 2740 Location: The Entropisphere
Posted: Tue Apr 08, 2008 5:48 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
hironegro wrote:
Value of the dollar doesn't effect the price of a barrel of oil.
Umm... it does if you are paying in dollars... unless you can explain further. _________________ "Against stupidity the gods themselves contend in vain."
-Friedrich von Schiller
"What I try, may not work. It may be ineffective. It might even turn out in the pages of history to be the exact wrong thing to do, but I'm going to try to do what I c
Posted: Tue Apr 08, 2008 2:26 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
wisconsin_cur wrote:
hironegro wrote:
Value of the dollar doesn't effect the price of a barrel of oil.
Umm... it does if you are paying in dollars... unless you can explain further.
A lower value in the dollar means that it'll take more dollars to buy oil regardless of what currency it is priced. In fact, we would have to pay more dollars for oil even if it were priced in pig guts.
Joined: Sep 25, 2004 Posts: 4419 Location: Boston, MA
Posted: Tue Apr 08, 2008 2:45 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
hironegro wrote:
wisconsin_cur wrote:
hironegro wrote:
Value of the dollar doesn't effect the price of a barrel of oil.
Umm... it does if you are paying in dollars... unless you can explain further.
A lower value in the dollar means that it'll take more dollars to buy oil regardless of what currency it is priced. In fact, we would have to pay more dollars for oil even if it were priced in pig guts.
The price of oil is quoted in dollars.
If it takes more dollars to buy a barrel of oil, the price of oil has gone up. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Posted: Tue Apr 08, 2008 3:39 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
Tyler_JC wrote:
hironegro wrote:
wisconsin_cur wrote:
hironegro wrote:
Value of the dollar doesn't effect the price of a barrel of oil.
Umm... it does if you are paying in dollars... unless you can explain further.
A lower value in the dollar means that it'll take more dollars to buy oil regardless of what currency it is priced. In fact, we would have to pay more dollars for oil even if it were priced in pig guts.
The price of oil is quoted in dollars.
If it takes more dollars to buy a barrel of oil, the price of oil has gone up.
If oil was priced at 63 euros a barrel we'd still be paying 100 dollars a barrel. Currenency has minimal effect on the price. The real reason for high prices is due to the growing demand for oil across the globe.
Posted: Tue Apr 08, 2008 4:01 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
The diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.
If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.
Posted: Tue Apr 08, 2008 6:08 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
threadbear wrote:
The diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.
If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.
Look there might be some effect due to traders hedging against the dollar by buying commodities, but saying high prices are due to falling dollar is a bit disingenuous.
Posted: Tue Apr 08, 2008 6:30 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
hironegro wrote:
threadbear wrote:
The diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.
If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.
Look there might be some effect due to traders hedging against the dollar by buying commodities, but saying high prices are due to falling dollar is a bit disingenuous.
By the Oil Drum's charts, the cost of oil in Euros has risen from about 40 euros per barrel, as of Jan 07 to 65 or so, euros? In American dollars the price of a barrel dropped to about 50. per barrel, Jan 07, and the more recent chart shows it at about 95.00. So it's not quite current, but, for the sake of argument, it's close enough. I don't have a calculator, but off the top of my head, that's about a 60% rise in price of oil, priced in euros, and about a 90% or more increase, priced in American dollars. Like I said....the weakening American dollar is raising the cost in dollars, but rampant speculation in commodity markets is ramping the price up in dollars, euros and every other currency.
Posted: Tue Apr 08, 2008 7:03 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why
threadbear wrote:
hironegro wrote:
threadbear wrote:
The diminishing value of the dollar, makes the cost of oil appear more expensive than it actually is. It also encourages speculators to shed dollars and park money in commodities, which drives the price up.
If the dollar was on par with the euro and excess speculation was expunged from the market, oil would still be very expensive, probably around $70.00 per barrel, but certainly not where it is now.
Look there might be some effect due to traders hedging against the dollar by buying commodities, but saying high prices are due to falling dollar is a bit disingenuous.
By the Oil Drum's charts, the cost of oil in Euros has risen from about 40 euros per barrel, as of Jan 07 to 65 or so, euros? In American dollars the price of a barrel dropped to about 50. per barrel, Jan 07, and the more recent chart shows it at about 95.00. So it's not quite current, but, for the sake of argument, it's close enough. I don't have a calculator, but off the top of my head, that's about a 60% rise in price of oil, priced in euros, and about a 90% or more increase, priced in American dollars. Like I said....the weakening American dollar is raising the cost in dollars, but rampant speculation in commodity markets is ramping the price up in dollars, euros and every other currency.
Rampant speculations? No I don’t think that’s what’s happening. Traders are hedging against the dollars. Demand for oil around the globe is growing. OPEC is continuing to keep oil production steady.
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