By the time I wrote this, the current upward trend reversed itself on the price of oil. We were told the increase in gas/oil prices were from a weak dollar.
Now normally I could understand that thinking for many commodities but this is something that someone is going to have to send me some feedback on as I do remember some of my history. That is to say, just after we went off the gold standard, the Nixon Administration made a deal with O.P.E.C. to tie the price of crude to the U.S. Dollar.
This was a very smart move as it stabilized the price of oil here in the states and for the world. But it also means that if other nations want to buy oil, they will be buying it in U.S. Dollars effectively meaning that they need to buy Dollars to buy oil.
This also means that our “Green Backs” are now backed by “OIL”.
So why, when we are buying oil in dollars and oil is traded in U.S. Dollars worldwide, should the value of our currency change the price of oil for us in the U.S.?
It does makes sense for other nations who also buy oil because if the Dollar falls against their currency, it makes their oil purchase less expensive as it takes less of their money to make ours thus more bang for the buck so to speak. But why should it bother the U.S. prices? Someone out there please explain this to me!
For no matter what the Dollar does against other moneys, it still costs us $xx USD per barrel.
If it were not for the U.S. war effort in Iraq and Afghanistan, we would be at a 30 year low in the consumption of oil. Just in the case you did not know it, the U.S. military is the single biggest user of oil in the world. This is why the Pentagon is looking to simplify fuel formats. Meaning that they only wish to carry 2 or 3 fuels in the field. Gasoline is now gone, Diesel (fuel oil #2) Jet Fuel (JP#2) are now the mainstay and soon we will have production in the U.S. making these from coal sources as a matter of national security.
In any case, the oil market is like a “HYPOCHONDRIAC” looking for the next thing to fear that oil consumption or production might change .01% in a week or a year. If it continues to go up, kiss economic recovery goodbye.
It will be interesting to see what Morgan Stanley will do with all the oil it has sitting off shore in tankers waiting for the price to go up even higher. Something they are promoting as the oil is not on the market for sale thus making a short fall in inventories. Nice to see my bailout tax dollars doing something. (see Oil Contango Post)
Watch-out, if we have a hurricane hit the gulf while Iran gets vocal again at the same time a slight uptick in oil consumption, we could see crude at $180 and the economy and banks busted again.
Here is a Wall Street Journal Report of the current Dollar/Oil Woes.