Tuesday, Oct 23, 2007
1yr in Oil prices plotted against most major currencies.
The Oil Drum: Europe: Oil Prices around the World: Do Exchange Rates Matter?
High oil prices will feed into inflation, causing interest rates to rise and asset (house) prices to fall. Many have suggested that the current bout of high prices is purely the result of a weaker dollar (given that oil is priced in dollars). This is a point that I have countered, but this link does the job far better, plotting the cost of oil against a number of major currencies. The picture it paints is that currency has little to do with the current bull market and all eyes are on supply and fear of it. If so, this is a structural or cyclical issue that will not simply go away, I personally think its a structural one, traders aware that peak oil is upon us, but that debate will only be solved a few years after the event when trends become clear.
6 Comments
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1. cornishman said...
Interesting graphs. I'd assumed that most of the oil price increase simply reflected the falling dollar. Not true it would seem.
2. cornishman said...
Thinking about this some more, if a country had a lot of devaluing dollars it didn't know what to do with (China) - it would make sense to buy oil now(priced in dollars) for future delivery. Maybe that's part of the price increase?
3. also sold to rent said...
In the long term the only thing you need to know about oil is that demand is outstripping supply and will do for the foreseeable future. Changes in both supply and demand takes years and so far nobody's even sure if we can increase supply from current levels. Most of my STR money is in oil stocks, so I've put my money where my mouth is!
4. planning4acrash said...
STR, be careful, because the stocks of oil majors will go down if they stop discovering and recovering oil, as is the case with BP who just had a major profit scare just today. Sure, its a good part of the investment matrix, but it will be smaller firms successfully exploiting smaller growth fields rather than majors with declining giant fields. Many of these smaller firms will get snapped up and taken over by majors, like what happens with microsoft who covered the major operating system, etc. and relied on taking over smaller companies for innovation. From what I understand, there are people further down the chain who will benefit. Refiners are at the moment needing investment, but will they suffer when heavier oil hits their margins? (less light sweet, more unconventional and heavy oil will cost more to refine). Plus, if there's a recession, oil prices could go down, hitting oil producers again. I think the video of Matt Symonds I posted on the wiki discusses this issue and Matt explains where he is investing, and if your in for the long haul, I'd probably take his point of view seriously, but I can't view it now coz I'm at work. http://www.housepricecrash.co.uk/wiki/Oil_prices
I reckon, in the long run that stocks in sustainable technology could be a future bubble if peak oil theory becomes mainstream (sometime in the next 5-10 years) because little serious attention has been given to this sectore in the past and there is massive potential for future government support, be ready for that rally when it starts, particularly in places like the UK where investment has lagged behind. Unfortunately coal will make a comeback, I'd personally hate my cash to be in coal, but it will be a winner, even if it destroys our planet!
5. whiteknight said...
most commodities/goods and gold are rising simultaneously..
6. planning4acrash said...
This aint peak oil, its peak commodities!