It's the oil burse, stupid!

Discussion in 'Energy Futures' started by Pekelo, Apr 13, 2006.

  1. Pekelo

    Pekelo

    I can't find any news if Iran already started it, although it was planned for the end of March. Trading oil in Euros, that is. That is the real reason behind this "nuke" thingy...

    For those who are unfamiliar with the topic, here is an intro, please don't mind the religious BS and Bible quotes, the history and economic points are valid:

    http://www.gracethrufaith.com/ikvot/iran-vs-america-round-two

    Also very good analysis by Krassimir Petrov:

    http://www.masternewmedia.org/news/2006/01/23/the_iranian_oil_exchange_proposal.htm
     
  2. Kensho

    Kensho

    I think no matter how much the Chinese, Russans, and Europeans dislike US hegemony - the very last thing they want to see is their biggest customer go bankrupt by a crashing dollar and the destabilizing effect that would have on the global economy. That's why there was no security council veto on the Iraq issue despite intense opposition, why our treasuries continue to be bought everyday, and why there is diplomatic cooperation so far on the Iran issue. The due date has past and suprise there is no oil bourse. However, I don't know how much the dollar is overvalued but reversion to the mean is envitable and its in everyone's best interest to make sure it takes place over time without panic so that there is enough liquidity the big players to diversify. Many commodities are traded in dollars so rising commodity prices and rising interest rates will provide support for the dollar at least in the short term.
     
  3. The notion that Oil being priced in other currencies than the US Dollar has been one of the technical achievements of establishing the Euro in the second place.

    In the first place, the Euro did what it was supposed to do, namely unify the European economies into a composite block and establish performance requirements upon their countries regarding their domestic economic policies and performance.

    This was achieved, and without the participation of the British Pound, much to the brilliance of the British.

    Now that there is a third currency capable to challenge the US Dollar, it should not surprise others and other countries that pricing and trading in Oil, which does make the world go around, would be conducted in another currency other than the US Dollar.

    This should not be considered such a horrible concept going forward, as it was built into the plans years ago.
     
  4. Excellent Commentary........
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    What is particularly interesting is just exactly how and exactly who decides what is a fair price in any currency....

    One is really trading euros for dollars anyway....

    The demand for US oil usage will temper the price of oil....too high for US consumers...then too high for the world...

    It does not matter about the currency...it is the price to current demand...

    The US uses and pays for the majority...
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    This is also the reason that a US specific full blown and seriously moneyed approach to alternative non fossil fuels...will make the OIL Welfare countries bow very quickly to low pricing....

    Here again this is specific to US demand alone...
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    If the US just simply simulated what poor countries do today.....use small motorcycles...and diesel powered cars....this alone would bring oil prices literally crashing down...
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    This is why the US government leadership is so important....Big money has to jump start the alternative energy industry as if it were a war against oil...not for it...

    Alternatives have to be able to survive in a $25 oil market....
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    The Bush Cheney debacle has only created a monstrous debt picture which did nothing for the US alternative energy picture....
    This has set back the real prospect of getting alternative energy cost down anytime soon...They might as well have tacked on 20 to 25 years...
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    Also the EURO is no pillar of strength....France's youth from ages 18 to 26 has an unemployment rate of over 20%....The rest of Europe is not so hot either...and if the US falls...they fall as well...

    Keep in mind that the OIL rich smaller countries have average incomes less than $300 per month...Chinas even less...
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    Everything shifts down...

    However...when the US can show a true energy self sufficiency effort backed by big money....the dollar will move up...

    All the dollar has to do to bring the EURO down is to increase interest rates.........
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    Can it be done....absolutely...with proper leadership....
     
  5. napa

    napa

    Big picture might not be quite as simple as implied here. I believe that price of oil is just one (albeit large) variable in this equation. The key is dollar denomination of all assets; copper, zinc and what not.

    So, those non-us countries holding large deposits of dollars with booming economy might actually be better off if dollar value would plummet. After all, demand (of commodities) seems to overpower supply for foreseeable future and denomination is unlikely to change. Change would require that those countries stop accumulating USD reserves and perhaps diversification of reserves.

    Therefore question is , i think, that will US shopping frenzy last and will that overshadow foreign need for (relativily) cheaper assets?
     
  6. jem

    jem

    So far I have never read an explanation of why denominating assets in Euros matters to the u.s. dollar.

    Anyone care to explain. don't we live in a system where the major currencies change hands almost freely. do not prices adjust.

    If the implications are correct. Pricing Oil in Euros would bring the price down. So we just exchange dollars for Euros, Right?

    Of course not. Dollar - Euro it does not matter. If anything there will be less need for our currency so we will save milliions on printing costs.

    I know I must be missing something but what is it?
     
  7. Pekelo

    Pekelo

    First post, second link, that's what you are missing. And you are welcome....
     
  8. jem

    jem

    I just read that article and seen similar ones before.

    Actually, the U.S. inflated out of savings and screwed its people more than the world in the 70s. by a long shot.

    But the author of the article forgets the trillion dollare international foreign exchange.

    I was hoping for some scholarly article showing the bid ask spread to be inversely related to the trade deficit or something like that.

    The guy who wrote that article is probably buddies with S.A. propaganda boss in Brazil. It is baloney.
     
  9. Excellent Commentary
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    The price of oil is based upon DEMAND...

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    The highest percentage of DEMAND is provided by the US...

    If the US DEMAND declines....thus the price of oil declines...

    It is this simple....
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    DEMAND does not care about its currency name...it cares about actual physical quantity...and the rate at which it physically moves...
     
  10. jem

    jem

    libertad I agree, the currency does not matter, so how could that have been an excellent article. It was a contrived piece based on a lack of understanding of the ease with which currency can be exchanged. If the world thinks the us dollar is inflating faster than their own currency it will not hold dollars.
     
    #10     Apr 14, 2006