Up $5/bbl today to close at $104.52/bbl. New all time high even when adjusted for inflation.

 

Bah, it's just the free market system at work.


(dives head-first back into the sand)

 

I predict it will break $120 this year.

Don't be surprised if prices drop right before the election and then spike immediately after just like in 2004.

 

Can we stop making posts everytime oil hits a new high? Because it's going to happen a lot.

 

Thank you.

 

Every time the Feds cut intrest rates, it drives down the value of the dollar against other currencies. Since US dollars are the currency OPEC uses, a lower value dollar means more dollars are needed to buy the same oil.

In short, even if the price of oil on a global stage doesn't change one cent, the Feds are driving up the cost of oil (as well as most all imported goods) by inadvertently lowering the value of the dollar in an effort to prop up the economy.

Besides oil prices setting records from now till eternity, and the price of gas hitting $4 per gallon by late spring and $5 per gallon by this time next year, does anyone see a catch 22 developing here?

 

Guy

The first statement doesn't make any sense to me. Oil is sold in $USD. I don't understand why more $USD are needed to buy oil when the USD is devalued because the $USD is the constant we're dealing with here. The only variable in the price per barrel of oil is the exchange (i.e. non-$USD) on the $USD currency.

For example, if a car is sold in $USD, how can that car become more expensive if the dollar is devalued? It doesn't, unless that car is sold overseas (i.e. outside of the US) in which case the car would be cheaper to buy if the USD is comparatively weaker against that foreign currency.

Please tell me I'm wrong, people.

 

We are not the only Customers of OPEC oil. With lower exchange rates for the dollar against their own currency, other nations are willing to pay more in dollar terms because in their local currency the cost stays the same.

 

Pretty much like Z28x explained.

Say the US dollar drops from $1AUS= .75 cents US to $1AUS=$1US. The US dollar has dropped 25%.

With OPEC using the US dollar as currency, if they do not raise the price in US dollars by 25%, then they have just given Australia a 25% cut in the price of oil, unless they raise the price to offset that. Same thing on a global stage as the US currency drops against most all other currencies.

With the US being by far the world's largest oil consumer, they might not raise the price by that full 25%, but they will raise it pretty close to that.

So while the rest of the world with currencies that are stable or increasing in strength against the US dollar, since the US dollar is the currency used in oil purchases, oil prices will remain stable or even slightly drop on the world stage while here in the US (unless wages keep pace with the dollar devaluation.... which it isn't by a long shot) the price of oil to us is going right through the ceiling.

 

Oil hit $105.97 today before backing off slightly, but it is still up over yesterday. Nicaragua has broken off relations with Columbia and there was a Seminary attacked in Israel. Add to that the Euro set another record high against the dollar. The scary thing is that many think the Fed is getting ready to cut rates by another .75. If that happens the run to $120 is almost assured. I just wonder what would happen with another major Gulf hurricane or any other major excuse to jump on the oil bandwagon.

 

That would make sense. So the only way to get cheaper fuel would be to change the base currency to something more stable.... e.g. from $USD to Euro.

But that just might upset the US politicians. We don't want the USA getting upset now...

 

There is a move with some OPEC countries to do just that, mainly Iran and Venzeuela, but not exactly for good reasons.

They are selling other OPEC nations on the idea because of the dollar's freefall. However, they also have the stated goal of destablizing the US economy.

How does switching from the $US to the Euro destablize the US economy?

Once OPEC switches from the US dollar to the Euro, the US dollar is no longer in demand to buy the world's largest commodity, oil. The dollar is already in a freefall due to staggering deficits and now the US Federal Reserve Board slicing intrest rates down to firesale percentages. Because it's rapidly depreciating, no one is intrested in buying US dollars anymore (save China, which is buying influence over US policy), because the US dollar is no longer stable or even strong when measured against other currencies, and every policy we've done to date over the past 6-7 years creates a record that we have no intention to change that.

So, with OPEC changing to Euros, there is no reason for any nation to buy or stock US dollars, so US dollars will be dumped in favor of Euros.

Demand for Euros goes up, rocketing up the Euro's value, since it's standard currency for oil purchases.

US dollars, on the other hand, flood the market. With so many dollars suddenly available, the value of the dollar implodes.

The cost of imports (especially oil) here in the US go ballistic due to more dollars needed to equal the currency of wherever we're buying from.

All this goes far beyond a simple case of US politicians getting their feathers ruffled.

 

If oil hits a new record price daily, how long until the riots break out?

 

here? Nope never will happen.

 

Exactly. Although I did make a flippant remark!

A lot of people say the reason that the US went to war with Iraq (apart from gaining access to their oil reserves) was due to Iraq choosing to price their oil in Euro in place of the USD (Saddam made a fortune doing so as the Euro was increasing in value). One would consider that this serves as a warning to other ME nations (such as Iran etc...) in case they consider doing likewise.