<The Road from Hel is paved with wind turbines!The Oil DrumDrumBeat: October 2, 2006>

50 comments on Remembering Mr Micawber*

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MicroHydro on October 2, 2006 - 3:09am Permalink | Subthread | Parent | Comments top
To believe that oil would be US$35 in 2009, one must believe that the growth in world oil production over the next 3 years will greatly exceed the growth in US$ M3.  Seeing as M3 is no longer reported, but credibly estimated to be growing at a double digit rate, to expect oil production to grow faster than that is simply amazing.
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Jack on October 2, 2006 - 3:44am Permalink | Subthread | Parent | Comments top
Would you mind explaining the linkage between M3 and the oil price?
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Sandor on October 2, 2006 - 7:33am Permalink | Subthread | Parent | Comments top
Micro, never thought of it before in that manner.

It would seem to indicate that oil, at US$35 in 2009, would be essentially worthless in the face of a global glut of US dollars.

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Jack on October 2, 2006 - 7:49am Permalink | Subthread | Parent | Comments top
I still don't get it. If the US prints money, the dollar deflates. This causes the price of oil to go up in dollar terms, not down.

It seems that case for $35 oil is impossible if the US is printing enough money to deflate the dollar relative to the basket of currencies of oil buying countries. This doesn't seem to be happening at this point.

It is true that a weakening dollar could make the dollar price of oil higher in dollars, even if it did not go up in purchasing power terms for other countries.

The original calculation could be modified by using 2009 dollar values from the futures market, but this would probably not have a huge impact. It would also be a bit of a tricky calculation to figure out the basket of currencies that oil prices trade against.

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Sandor on October 2, 2006 - 4:47pm Permalink | Subthread | Parent | Comments top
But Jack, you do get it.

The Feds are printing money like reckless thieves, but who knows, they won't tell us any longer how much they are actually printing.

This will certainly devaluate the dollar.

Add in the rate of inflation... and who knows what that really is either. Its either what the feds tell us, or more likely, it really is about 7 percent.

Now, imagine oil selling for half the price than it did several weeks ago, 3 years from now!

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