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Is the Falling Dollar behind Oil Price Rises?
Jeff Vail, blog
It’s difficult to turn on CNBC, read any newspaper article on oil prices, or listen to other discussions of the topic of oil prices without hearing this theory: really, it’s the decline in the dollar that’s responsible for the rise in oil prices.
“They” advance two reasons for this: first, dollar-denominated oil traded on the NYMEX must go up equal to the amount that the dollar goes down, or it’s actually losing value.
Second, the belief that the dollar is losing its footing as the world’s reserve currency is causing a flight from dollars to commodities and other hedges against a falling dollar. Lots of words, but very little data is usually provided to back this up. I decided to put together a little graph that cuts right to the heart of the matter: [GRAPH]
(2 June 2008
Oil price crash not imminent despite bubble: Soros
Reuters
The phenomenal rise in oil prices show signs of a bubble, but a crash is not imminent, billionaire hedge fund manager George Soros told U.S. lawmakers on Tuesday.
“We are currently experiencing the bursting of a housing bubble and, at the same time, a rise in oil and other commodities which has some of the earmarks of a bubble,” Soros said in prepared testimony before the U.S. Senate Commerce Committee. “To be sure a crash in oil markets is not imminent.”
(3 June 2008)
Related from CNN: Costly oil could mean recession – Soros.
Reports of Oil Boom’s Death Look Premature (text and video)
Aaron Task, Tech Ticker, Yahoo!Finance
After falling sharply Thursday and slipping below $125 per barrel in London earlier Friday, oil prices were recently rebounding in New York trading.
Still, oil’s fall from its recent peak above $135 has revived discussion about whether the “oil bubble” has popped.
While it’s undeniable speculation has contributed to oil’s rise, it’s premature to declare an end to the oil boom — if only because so many speculators are betting on falling oil prices. Bubbles typically don’t peak until all the bears throw in the towel, and we’re a long way from that when it comes to crude.
(30 May 2008)
Oil falls more than $1 as dollar edges up vs euro
Jonathan Leff and Maryelle Demongeot, Reuters
… The market shrugged off Tropical Storm Arthur, which formed one day before the official June 1 start of the Atlantic hurricane season, but quickly weakened into a tropic depression.
Arthur, the first storm of a June-November hurricane period that forecasters expect to be more active than usual, forced authorities to shut two of Mexico’s three main crude oil ports as a precaution.
State oil monopoly Pemex says its export volumes are rarely hurt by temporary port closures, as it reschedules delayed shipments once the weather clears.
(2 June 2008)
Contributor Scott Chisholm Lamont writes:
There seems to be little trading reaction to the first storm of the season. The US gov’t hurricane forecast for the Atlantic basin (June – November) is for normal to above normal both in number and intensity of storms, which one report points out could easily spike gasoline prices to $5 or $6 per gallon should the Gulf coast be hit again (money.cnn.com/2008/05/22/news/economy/hurricane_season/index.htm). Couple this with Matt Simmons’ most recent presentation posted on his site regarding the rusting petroleum infrastructure, and it is easy to see how one well-placed storm can cause a major energy supply nightmare.
Oil price bubble will burst with a bang like dot-com did
Business 24/7 (United Arab Emirates)
The steep run-up in crude prices this year has been compared with the dot-com period of the previous decade with an equally severe fall in the per-barrel cost of oil forecast.
“It is difficult to project when market perceptions will turn from the current bullish sentiment. It will almost certainly take a persistent stock build. It might also take a rise in the dollar against the euro and the psychological impact that could have over time,” investment bank Lehman Brothers said in an oil market report released yesterday.
“In the meantime, market momentum is likely to continue to reinforce the view that even if peak oil is not yet here and even quite far off, there is unlikely to be new supply in the market for at least half a decade. Summer market tightness could, under these circumstances, continue to propel oil prices upward to untested levels.
“But when peak prices hit, we believe they are also likely to fall precipitously. That’s the way cyclical turning points tend to occur – in the midst of a market trend, turning points can be sudden, unexpected, and severe. If history is a guide, the turning point will come. Getting the timing right is the difficult part,” Lehman’s researchers said.
(4 June 2008)
How Speculators are Manipulating & Profiting from the Global Food Crisis
A.K. Gupta, ZNet
… If there is a main culprit, it is the market. There is a lot of talk about growing consumption and falling supplies for both food and energy, but most of the data contradicts these claims. For example, despite a drought in Australia, ice and snow storms throughout China, and a cold, wet winter in the American breadbasket, the UN Food and Agricultural Organization projects global cereal production for 2007-2008 to increase by 92 million tons to 2.102 billion tons. But almost all this increase is from a record U.S. corn harvest, which is feeding the market for biofuels.
In essence, large speculators ranging from Wall Street banks and hedge funds to oil companies and agribusiness giants are making a killing from trading commodities. Analysts say some players may be manipulating the markets, but this is extremely difficult to prove because regulatory oversight of these markets has been deliberately rolled back. Still, many sectors appear to be engaging in blatant profiteering. This includes speculators, but also extends to food retailers, food producers, and fertilizer manufacturers.
… Much of the debate boils down to politics versus natural limits. This debate stretches back more than 200 years to Thomas Malthus’s 1798 “Essay on the Principle of Population,” in which he argued, as John Bellamy Foster put it, “There is a constant pressure of population against food supply which has always applied and will always apply.” Without retracing the debate over hundreds of years (Foster’s 1998 essay in Monthly Review, “Malthus’ Essay on Population at Age 200: A Marxian View,” is an excellent introduction), it’s critical to note that it’s still of great relevance today. Many people who speak of natural limits—such as the “peak oil” or “peak food” crowd—are neo- Malthusians. They often exhibit hostility toward the poor like Malthus, who wrote, “We cannot, in the nature of things, assist the poor, in any way, without enabling them to rear up to manhood a greater number of their children.”
Some involved in the debate today, such as Lester Brown and the World Watch Institute, tread close to the Malthusian line in warning of the “population problem” and arguing that it is a major reason why commodity prices are rising.
(2 June 2008)
Traditional leftist opposition to Malthus. At its least thoughtful, this stream within leftism is a mirror-image of free market economics, ignoring biological and geological realities. -BA
