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Frank
Heavy Crude
Joined: Dec 15, 2004
Posts: 428
Location: Maine
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 Posted: Fri Mar 14, 2008 5:22 am Post subject: How Much Does US Dollar Value Effect Oil Prices (and why?) |
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Can someone offer a layman's explanation? I have my own ideas but would like to learn more.
TIA |
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mkwin
Intermediate Crude
Joined: Jun 01, 2007
Posts: 595
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| Posted: Fri Mar 14, 2008 8:04 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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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. |
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Frank
Heavy Crude
Joined: Dec 15, 2004
Posts: 428
Location: Maine
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| Posted: Sun Mar 16, 2008 5:14 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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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. |
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sjn
Intermediate Crude
Joined: Mar 09, 2005
Posts: 568
Location: UK
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| Posted: Sun Mar 16, 2008 7:52 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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. |
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mkwin
Intermediate Crude
Joined: Jun 01, 2007
Posts: 595
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| Posted: Sun Mar 16, 2008 11:11 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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. |
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LastViking
Tar Sands
Joined: Feb 19, 2007
Posts: 94
Location: British Virgins
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| Posted: Wed Mar 26, 2008 6:53 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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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:
 Barrel Meter |
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hironegro
Heavy Crude
Joined: Apr 08, 2008
Posts: 322
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| Posted: Tue Apr 08, 2008 4:47 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| Value of the dollar doesn't effect the price of a barrel of oil. |
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wisconsin_cur
Moderator
Joined: May 10, 2007
Posts: 2917
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| Posted: Tue Apr 08, 2008 5:48 am Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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.
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"Against stupidity the gods themselves contend in vain."
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"Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable."
John Kenneth Galbraith |
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hironegro
Heavy Crude
Joined: Apr 08, 2008
Posts: 322
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| Posted: Tue Apr 08, 2008 2:26 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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. |
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Tyler_JC
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Joined: Sep 25, 2004
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Location: Boston, MA
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| Posted: Tue Apr 08, 2008 2:45 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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.
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hironegro
Heavy Crude
Joined: Apr 08, 2008
Posts: 322
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| Posted: Tue Apr 08, 2008 3:39 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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. |
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threadbear
Expert
Joined: Jan 22, 2005
Posts: 7473
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| Posted: Tue Apr 08, 2008 4:01 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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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. |
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hironegro
Heavy Crude
Joined: Apr 08, 2008
Posts: 322
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| Posted: Tue Apr 08, 2008 6:08 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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.
Here is a link that shows price oil per barrel in other major currencies.
http://europe.theoildrum.com/node/3106 |
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threadbear
Expert
Joined: Jan 22, 2005
Posts: 7473
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| Posted: Tue Apr 08, 2008 6:30 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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.
Here is a link that shows price oil per barrel in other major currencies.
http://europe.theoildrum.com/node/3106 |
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. |
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hironegro
Heavy Crude
Joined: Apr 08, 2008
Posts: 322
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| Posted: Tue Apr 08, 2008 7:03 pm Post subject: Re: How Much Does US Dollar Value Effect Oil Prices (and why |
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| 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.
Here is a link that shows price oil per barrel in other major currencies.
http://europe.theoildrum.com/node/3106 |
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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