<DrumBeat: December 9, 2006 The Oil Drum Fuel duty and the effect of oil prices on the UK economy>

179 comments on Scarcity Rents and Oil Prices, Again

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oilmanbob on December 8, 2006 - 4:37pm Permalink | Subthread | Parent | Comments top
Thanks Dave for another great Post!

I have two observations, probably unsettleable until history gives a perfect 20/20 hindsight;
1.Currency problems. Now that Iran is denominating its sales in Euros, and the US dollar weakens, we may end up paying a premium for oil in the US. I'm woried that we will see a flight away from the Petrodollar in foreign markets because of the Republicrat and Demican fiscal irresponsibility combined with Moslem repugnance for our foreign policy.
2. Economic theory gives very little weighting to the psychology of speculation. The most recent highs of $78/bbl were combined with the Hedge Funds trading oil to irrational heights. I'm pretty sure the Hedge Fund 30 something cowboys have been reined in by their bosses because of the collapse of Amarynth and the beginning of what may be a huge housing sparked recession. I'd bet money the pension funds who use the Hedge Funds are telling the boys to chill out. I'm assuming the Pension funds are smart though, and thats not a proveable assumption, and quite possibly dangerous.

At any rate, my guts tell me WestTexas is right. Things are just too unstable for energy prices not to double again in the near term.

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Yosemite Sam on December 8, 2006 - 5:43pm Permalink | Subthread | Parent | Comments top
My understanding is that the Euro is not robust enough currency to handle the all the capital that is now is petrodollars.  The dollar is like the failing bank that is too big too fail in it is too big to ignore.
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memmel on December 8, 2006 - 8:01pm Permalink | Subthread | Parent | Comments top

General Motors is too big to fail.

I think the USSR is too big to fail also.

Oh wait...

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Yosemite Sam on December 8, 2006 - 9:05pm Permalink | Subthread | Parent | Comments top
OK, bad example.  The Euro cannot "physically" handle the job.  The stock and bond markets denominated in Euros do not have the necessary capacity.
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Nagorak on December 8, 2006 - 10:08pm Permalink | Subthread | Parent | Comments top
I believe the Euro bond market might be larger than the U.S.'s.  I've heard that anyway, although I can't provide a link to any substantial source.  If so, it's kind of silly to say the Euro can't handle the job.  

The dollar is not all that important.  Everything could easily switch over to Euros or other currencies.  It will happen, but it will no doubt take many years time.  

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Paul in Nevada on December 9, 2006 - 12:42am Permalink | Subthread | Parent | Comments top
The euro float is certainly large enough to handle the oil trade. If money is purchasing power, the financial institutions of this world can provide plenty of Euros.

The weakness of the Euro is political. Not all countries in the Euro market are happy with membership. See Italy for one example. It would prefer a currency it could more easily inflate (devalue or debase).

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Dragonfly41 on December 9, 2006 - 10:01am Permalink | Subthread | Parent | Comments top
Hey...a petrocurrency has to start somewhere.  The Euro already acts as a defacto "basket" currency.  Makes it easier to add additional countries/currencies.  I think it would be quite easy to switch over, if/when countries decide to give it value.  All it takes is "agreed upon" confidence.
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179 comments on Scarcity Rents and Oil Prices, Again

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