Just so people know.....OIL IS HIGH BECAUSE THE DOLLAR IS LOW

[Trish1168]

Everywhere I look I hear that oil prices are high because of demand. Demand is higher, there's no doubt. But OPEC and the other oil producers have increased capacity to meet that demand.

The dollar has fallen 40%. The price of oil has risen by 40%. They have to ask for more dollars, because dollars are less valuable.

A chart of oil prices valued in gold terms will show you that the price of oil (in gold) has not changed in more than 50 years. Its steady and flat (although in the last several years, central banks have tried to suppress the value of gold to prevent currency collapse, but that's another story).

In anycase.....oil up 40%, dollar down 40%. Coincidence?

Remember the '70's? Remember when the dollar was devalued (high interest, high inflation, high oil). It was the same thing (price of oil was higher because the value of the dollar was lower). Then Reagan came along and tightened the money supply....poof, overnight, the price of oil dropped.

So, please, whoever reads this....SPREAD THE WORD. All this misinformation about the cause of high oil prices is driving me insane.
:banghead:

[Teaser]

1. All them oil analyists is wrong.

I just know it.

[Telly Savalas]

24. In the OP's defence, most analysts I've heard say the falling dollar...

is a major contributing factor to the rise in the price of oil.

[smoogatz]

2. Oil up 40% since when? Dollar down 40% compared to what?

A remarkably vague and fact-free post, even for DU. Please clarify. Also, what source can you provide to show substantial increases in OPEC output in the past year or two?

[Trish1168]

9. Read James Turk's book about the dollar

I have read all over the place about the value of the dollar having gone down roughly 40%. In separate news statements, I have read that the price of oil is up about 40%. Do a little googling if you don't believe me.

[ProfessorGAC]

20. I Don't Need To Google

Your information is in error. The dollar's value has NOT dropped 40% relative to other currencies. Sorry, but that's not even close. In 2003, the dollar relative to the British pound as at $1.41 to the pound. Today, it's $1.52. That's only 7%! The exact same calculation can be done against the yen and the euro. You will find all to be between 6.5 and 7%. I don't need to Google. I have this econemtric data on my computer every single day!

Besides, since oil prices are a function of dollars, the weakness of the dollar does NOT impact the trade value. The demand is a bit higher, production was intentionally cut by OPEC reducing supply in order to drive the price up, and the cost of transport has gone up because the insurance companies that cover the ships in the Persian Gulf have raised premiums due to the conflict that our moron "leadership" started.

Since these things create a compound price increase, the combination of all these factors amount to the 40% increase at the pump. You are attempting a false analogy, because in economics the cause and effect is VERY SELDOM "x leads to y". It's almost always "these 5 x's, in weighted combination leads to y". There are almost no instances in economic history where a change in microeconomic condition is solely attributable or can be correlated to a single factor. And this situation is no different. It's not because of the drop in value of the dollar. They do not correlate one to one, and they're not even close.
The Professor

[Liberal In Texas]

22. Wrong about the British Pound

Today it's $1.9047.

http://www.x-rates.com/

edited to add link.

[ProfessorGAC]

23. I Must Also Be Wrong In The Starting Value Too

The dollar hasn't fallen 40% against the pound. We have a British subsidiary and the consolidated statements do not at all reflect that change. I'm using the consolidated statements of income as my reference, and my recollection of what the pound was worth when i was last there. I forward calc'd the value based upon that recollection and the CSOI. If i was wrong about the pound value in dollars from last year, then both numbers have to be wrong.

Sorry about that. In fact, however, using our CSOI, the change is only about 7%.
The Professor

[Liberal In Texas]

27. The lowest the pound got in 2003 was (avg/mo) was April

at $1.57. For the rest of the year it ranged upward to $1.70.
For the first half of 2002, it was $1.42 to $1.48.
In 2001, for one month (June) it averaged $1.40.

So, $1.90 minus $1.40 is $.50. About a 38% rise since 2001's low.

If you take April of last year, it was (avg) $1.80, a $.10 difference, or 5% in one year.

[enid602]

12. dollar

The dollar has lost 35% of its value to the Euro in the last year and a half, 30% against the yen, 20% against the Canadian dollar, even 20% against Brazilian reais. OPEC is not a charity; given that they charge in dollars, they must now charge more dollars to maintain the same level of receipts. It's not a case of say, the Euro gaining against the dollar, but rather a case in which the dollar is losing value to most world currencies, no doubt due to the federal and trade deficits. Baring the peak oil effect (or any, God forbid interruptions in supply), the price of oil will continue to skyrocket as the poorly managed dollar is forecast to lose anywhere between 15% and 40% (depending on the analyst) of its value. And as we pay more, our trade deficits go up even further. Not a pretty cycle.

[Up2Late]

29. Sorry, but I know exactly what the "Trish1168" is talking about.

From now on, when someone leave out a few fact like in the original post, it's safe to assume the words "...since * took office..." are what's missing. That IS the purpose of Skinner's website (DU), re-read the DU rules, if you doubt this.

Also, if she read this in a book, as she says, the author of the book would have been making a prediction from what was happening when it was published. Even though the Dollar has recovered a bit from it's lowest point in 10 years ($1.36) compared to the Euro, it is still on a downward trend. You can see this 12 month trend at this BBC News web page:
<http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/13/12/twelve_month.stm>

I'm not going to take the time to walk you through all the data there, I think you can figure it out. It has lot's of drop-down options, tabs and links to change the currencies, time span, and comparisons. Do Note that the U.S. Dollar Chart is an "Inverted graph." I suspect this is so it is less shocking, so to not cause a panic.

Here are a few links to more stories at BBC News On-line, you can find more by searching that site with a few "key words" Like "Euro record Low" or "Dollar new Low Euro" etc.

Here's a quote from the top link below:

"...The euro, the currency that everyone seems to be watching most closely, has now gained more than 10% against the dollar in the past six months, and fully 58% since its historic low of 84 US cents in July 2001..."

Q&A: Why the dollar's in decline

<http://news.bbc.co.uk/1/hi/business/4058343.stm>

Euro plunges yet again

I have more data, if you still want it, I'll probably be posting to some of the post below with more data in the next few hours.

[bpilgrim]

3. supply&demand

i'm sure has an impact

http://news.globalfreepress.com/movs/Al_Bartlett-PeakOil.mp4
http://www.hubbertpeak.com

peace

[Up2Late]

4. Yup, exactly what I've been yappin' about for months!

And WHY is the dollar SO low? Because the Deficit (and U.S. Debt) is so high!

Think 1999,U.S. starts buying back the Debt, Oil falls below $10.00 per barrel, and Regular Unleaded, falls below $0.90 per gallon (here in Georgia).:pals: :evilgrin:

[politicaholic]

5. Yes, but Carter was Satan and Bush is God right?

Maybe if Jimmy Carter had made out with a Saudi prince or two he wouldn't have gotten such a bad wrap.

[e75]

6. //

I think thats a good observation. However I believe gas was about $1.25 when Bush took office and is about $2.50 now so that is a 100% increase if this is the case

[Up2Late]

8. It may have been $1.25 where you are, but the average was...

...right around $1.55 (national average)<http://archives.cnn.com/2000/US/11/06/gas.prices/index.html>

and now the national average is $2.24 <http://www.cnn.com/2005/US/04/24/gas.prices/index.html>.

Gas prices lag a few weeks behind Oil and the Dollar (Oil lags behind the Dollar) This BBC NEWS site has a lot of Currency and Oil price data, if you search words like "Euro New Low." <http://newsvote.bbc.co.uk/1/shared/fds/hi/business/market_data/currency/default.stm>

By the way, the Euro was around $0.83 to the Dollar, when * was elected.

[Maple]

7. Nonsense

[erichzann]

13. Well argued! Really helps us newcomers around here...

For those of us not fully informed on all the economics, would you care to add a little more than just "nonsense?"

[Toots]

19. Why is oil in Europe pretty much the same price as 4 years ago?

Yes it has gone up a little just like all things but it hasn't doubled in price over the last four years like it has in America. Why is that if oil is sooo scarce?

[IrateCitizen]

10. Your figures are wrong

The dollar has fallen 40%. The price of oil has risen by 40%. They have to ask for more dollars, because dollars are less valuable.

Actually, over the past 7 years or so, the price of oil has gone from the neighborhood of $10-12 per gallon to $50-55 per gallon. That isn't a 40% rise, it's a 400% rise! And assuming a rate of inflation of 3% per year, that still puts 1998 oil prices at approximately $13.50 in today's dollars. That is still an increase of 375-400%!

The falling dollar is a consequence of many things. Unsustainable deficits, a falling share of global manufacturing output, and yes, a surge in the price of oil. But the increase in oil price is NOT a result of the falling dollar, per se.

The reason for the rise in oil prices is increasing demand coupled with flattening supply. There is simply no more swing production that can be counted upon to bring prices down. Even if Saudi Arabia and Kuwait are able to increase production slightly this spring, chances are it will have minimal impact with the steadily-increasing demand from China, India, and the US. And if they cannot follow through on that promise, then we will know that we have passed peak oil, and we'd better gird ourselves for prices of $100 per barrel in the not-too-distant future.

[trekbiker]

16. I'll second that.. Good Job IrateC... n/t

[nothingshocksmeanymore]

30. Do you mean per barrel?

:hi:

[sandnsea]

11. Yes, you're right

Not sure if your numbers are exactly right, and there is probably some demand problems involved too, but the falling dollar is a major part of the problem as well. Can't even believe anyone would deny it.

Oh, and it was CARTER'S appointee, VOLCKER, who tightened the money supply. Reagan didn't have jack to do with it.

[MsTryska]

14. oooh...we're gonna be in a world of hurt

when OPEC and China decide they're only gonna trade in euros from now on.

[lectrobyte]

15. It might be interesting to see a chart of oil prices in Euros for the

last couple of years. I'm not an economics expert by any means, but the deficits and trade imbalances can't be good for the value of our currency.

[muriel_volestrangler]

32. Here - up to about Sep 04

[Squeech]

17. Wrong

about gold too. Gold spiked to about $800/oz during the Reagan years, but oil didn't triple to match it.

Maverick investment guru Jim Rogers thinks that the next boom will be in commodities-- which is to say, considering it as something other than an investment strategy, the supply of raw materials is going to be the major bottleneck for the world economy. Oil is only the most obvious example.

[derby378]

18. Gotta say - that's a good point

Anyone else notice prices rising at the supermarkets? Our dollar is weak, and * is letting it get weaker.

[ProfessorGAC]

21. Nothing to Do With It

Read my post to the OP. The OP is wrong and does NOT have a good point. The facts are completely wrong. Food prices are going up, yes, and a good part of that is the increased cost of shipping to the stores due to higher gas and diesel prices. But, since 99% of all foodstuffs sold at retail in this country are grown here, processed here, and packaged here, the weak dollar has no effect on food prices.
The Professor

[Liberal In Texas]

28. Yes it does.

Even you admit the costs go up due to the price of oil going up. Anything made or shipped with oil is going to go up. And the weak dollar is very good reason for the price of crude to go up.

The price of anything being shipped even if it's across town is going to rise. If it's made with plastic or packaged in plastic, the cost is going to go up. Plastic is made from oil!

And, I submit, most of the things we buy are not produced across town.

[all.of.me]

25. when gas goes, up everything goes up

especially things that need to be transported (which is everything, but food comes to mind). that's why it's important to buy locally whenever possible. or grow your own!

[all.of.me]

26. an afterthought....

another reason food is high is due to bad weather. when it rained in california, crops got wiped out. i saw lettuce for almost $3 this winter and spring! produce prices are just starting to drop here (new mexico).

[jdj]

31. you know,

If I were creative enough, this would make a great nursery rhyme or Dr. Suess book

I thought that's where you were going with it at first, that would have been funny, LOL.

I love folks like you who actually understand this stuff and post it for those of us who don't.

[libertypirate]

33. Translation

Americans are worth less, so shit costs more.


Doesn't that happen when the rich are worth more and the rest are worth less?