Guys, I was just thinking about economics and fuel prices, and I had something occur to me that I thought was interesting.

First, the entire world oil market is denominated in US Dollars. It doesn't matter where you are buying it, it's sold in dollars. So if you have a Euro or Rial or Yen or whatever, you convert it to dollars to buy oil. This is because the world's largest oil companies were built to cater to the world's largest oil consumer- -the US. So the market for oil is bought and sold in DOLLARS.

Second, the fiscal and monetary policy of the US has resulted in the devaluation of US dollars relative to other currencies. Euros and other currencies are trading at record highs relative to the dollar. This is because the high US deficits and rising national debt have reduced the creditworthiness of the US. US government bonds are gong for higher interest rates on the world market because of this.

So, is it possible that oil prices are NOT so much going up as the value of the Dollars we use to buy it are going DOWN???? And....because oil is sold in dollars, the price goes up as the dollar goes lower??

It's interesting to entertain the idea that the Gov't could bring down the price of oil by cutting Gov't spending and other things that would help strengthen the US Dollar...

Just something to consider..

JLH

 

Precisely. This is why Europe and Japan have not seen the runup in fuel prices that the U.S. has - their appreciating currency (relative to the U.S. dollar) will buy more and more dollar-denominated oil as the dollar falls.

It's also why OPEC and other oil producing/exporting countries want to keep prices up or even drive them higher - the purchasing power they gain when selling a dollar-denominated barrel of crude oil is eroding as the dollar drops, so to stay even they must see dollar-denominated oil prices go higher in direct proportion to the decline in the value of the dollar.

Rusty

 

Ooooh, I never even thought about "oil inflation" But that's pretty close to what's happening, right?

Chris

 

Inflation, properly defined is an increase in the supply of paper money. More money chasing the same supply will drive prices higher. Supply/demand thing.

One of the reasons the U.S. invaded Iraq is Saddam decided to sell his oil for Euro's instead of Dollars. OOPS!

If the fed keeps up the credit expansion, eventually the dollar will lose it's hegemony as the worlds reserve currency. When foreigners start dumping their dollar reserves the dollar will fall like a rock.

Then we'll be longing for the old days when gas and diesel were under $3/gallon.

Edwin

 

Iran is threatening the same thing which could be real bad since Saudi Arabia admitted this week that they have reached peak production without doing permanent damage to their oil fields. This makes Iran the new world leader in oil reserves.

President Chavez of Venezuela, third largest reserves, has said he will no longer sell oil to the US unless Bush quits trying to overthrow his democratically elected government and he calls off the CIA assassination squads that are supposedly after him.

Actually when inflation is taken into consideration fuel prices have been very stable for twenty years

 

I remembered hearing that. Thanks for putting up the chart.

The safe bet, if you want to safeguard your money is buy gold/silver. Stocks won't do it, they are in a bear market. Comodities are the next bullmarket. When interset rates go up, as they must, real estate will tank.

Buy some farmland and raise a good oil crop and run your truck and tractor on Biodiesel.

I'm just hoping that Social Security will still be worth something when I retire (soon now).

Edwin

 

Dang, THAT must be why my 401(k) is only up 40% over the last 2 years!!!

Rusty

 

Past performance is no predictor of the future.

 

Hohn, I think ya got it right! I saw a report on the news a week ago that said Cheyenne Wyo had the cheapest diesel fuel in the nation...............I better drive down there and get me some

I say if ya cant beat em join em............buy stock in oil and gas, I work in this field and my 401K is lookin better all the time, maybe retire at 55 .........course keep my lil woman workin though did I say that

 

How much you pay us to not tell her?

Edwin

 

That's why they have "stop loss" orders.

Rusty

 

You're probably right.
Was reading in an agricultural publication that this year China will run out of the massive stockpiles of rice, wheat and corn that they've hoarded for decades. When this happens they will become an importer of farm staples in a way the world has never seen before. Due to good ol' supply and demand this will be great news for the US farmer, downside is it could cause a drastic rise in domestic food prices.
Next thing you know fuel prices won't seem so bad compared to the grocery bill.

 

Chavez is smoking some good dope. He's a bonafide lunatic. He wouldn't dare cutoff the supply line. That would get him whacked.

The bigger problem is China. They are controlling not only the oil prices, but are the newest owners of our debt. Them and Japan own most of our treasury notes. When and if they decide to flex their muscles, they could collapse our economy.

 

i dont think so hohn.true the canadian dollar has been making some ground against the us dollar but the price of diesel is also going through the roof here. its just good old supply and demand.canada leaves the fridge door open demand goes up then prices go up.

 

Im sure have a country of 1.4 billion people buying some half million vehicles from GM alone in an economy growing at 9% per year has nothing to do with demand on oil?

also, lets not go into the fact that there is a bit of a steel shortage due in large part from a down turn in production world wide and large numbers of companies are not carrying ANY inventory. Everyone of our suppliers are going to just in time manufacturing.