Redstate

How do you explain AFP story Friday

"Oil was up (on Friday) after yesterday's subprime-related sell off," said Michael Davies at the Sucden brokerage in London.

"One other factor probably helping crude today is the weaker dollar, which makes crude relatively cheaper for foreign buyers," he said.

"The dollar has been under considerable pressure because of the weak US economic outlook, which has persuaded the Fed to cut rates."

http://afp.google.com/article/ALeqM5gwIrUFcg2x9OCmbCPoRWjiXtFzOQ

You just think supply demand circs would have caused oil to rise irrespective?

I think Menzie Chinn refutes the dollar theory fairly convincingly in a post notably lacking in partisan hackery, heh.

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The Euro and Sterling prices - even for North Sea oil - are calculated from the Dollar price at current conversions.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

by the way, what is the political point here? I will admit the sub prime situation hurts, but it certainly is not the "reason" for the high oil price. It always amazes me how people always want to find some nefarious reason for oil prices.

It is really simple, before this age, the only game in town was Europe/UK (I still don't call them Europe) and the USA. Now we have massive demand from China, India, and Brazil. Gee, more people want oil, but we stil have the same amount, I guess that COULD be a reason for increased oil demand and prices.

Sure you can add in artificial oil drilling restrictions, the War on Terror/terror threat, the falling dollar and MSM exploited fears about a huge hurricane season.

The price of oil is not comparable to prices of 20, 50, or 100 years ago. The reality is energy costs as a percentage of GNP has fallen over the years. Also, why fight it when you can buy the oil stocks? And you can even buy the few decent "green energy" stocks and make money too.

Molon Labe!

Gee, more people want oil, but we stil have the same amount, I guess that COULD be a reason for increased oil demand and prices.

Same amount as when? If you mean the number of barrels of proven supply has been stable, that's not really true. If you mean we have the same number of years' supply, that is roughly true, and has been for decades, but, of course, that incorporates higher demand.

The main current reason is market sentiment surrounding uncertainty of supply. The Middle East still produces the cheapest oil, and it is an unstable region. Iraq has taken longer to settle down and start producing in the quantities that it can than I would have anticipated. Do recall that, prior to the invasion of Kuwait, Iraq was the third or fourth biggest exporter.

Shell was predicting a few years ago that the current upswing (which hadn't really started at the time) would peak in 2006. I am pretty sure that instability in Iraq and Iran is the main reason it didn't. However, Shell's projections were made on Iraqi exports under sanctions. When Iraqi oil is flowing again - and, no, I don't know when that will be - it can reach much levels than we have seen since the 1980s.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

price! I think I mentioned uncertainty. BTW, I back my opinions with real money, so far so good.

Molon Labe!

Increased demand affects price and supply. Supply, in expected future consumption, remains pretty stable. This is a matter of policy. Oil companies don't invest billions in developing supplies for which there is no market, so they adjust their exploration operations to suit their estimates of future demand.

BTW, I back my opinions with real money

Good for you. I don't do that. If I did, I would not have bet on prices rising this year and would not bet on them doing so next year.

so far so good

I am glad for you. I hope your luck and judgement continue to work for you. I don't need to tell you that a lot of gamblers have said 'so far so good' before. Some of them carried on winning.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of

I am not a gambler. Well I am, but not by owning oil stocks for the long term. anyway, sorry about the terse post, I was in a mood :)

Molon Labe!

If the price of oil goes up with the price of the euro in dollars, then the price of oil when paid for in euros should be unchanged, no?

But look at this chart from Worthwhile Canadian Initiative. The prices of oil as bought in several currencies are all moving together.

That suggests strongly that the driving force behind oil price increases is not currency-based, but rather elsewhere. Either in fundamental supply or demand, or in a great deal of speculation and risk management, I'd say.

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I think it is principally, if not entirely, driven by the fundamentals of the market. If the dollar continues to fall or move erratically against a basket of other currencies I suspect the convention of pricing solely in dollars will break down.

Quentin Langley
Editor of http://www.quentinlangley.net

International Editor of