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29 comments on Oil Prices around the World: Do Exchange Rates Matter?
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29 comments on Oil Prices around the World: Do Exchange Rates Matter?
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GAIA Host Collective
The interesting thing is that they are NOT averaged.
I'd like more thoughts on why there are the differences. Why is Russia suffering a higher oil price? [I'd have thought Russia might be analogous to CA because of internal energy resources.] Why is New Zealand less affected?
cfm in Gray, ME
Interest rates (prime rate), trade balance, money supply, other resources, speculation, et cetera, et cetera...
In NZ the interest rates have been in the order of 8% for some time, which have made their currency quite tempting.
No one wants their paper currency to get to strong against the US$, even in the case of an Oil exporter. The main difference from Canada and Norway to Russia is that in the case of the former two, investors and speculators flock to their currencies in times of US$ weakness and the central banks lag some time in resetting interest rates. As for the Ruble, it seems that somehow investors don’t see it as an alternative as good as the other two.
In order to keep oil prices low in Russia, Russia would have to let its currency rise substantially against the dollar. Despite Russia's energy resources, they simply do not account for enough of the economy to let that happen.
Were the Ruble to rise a great deal, the rest of the Russian economy would be wrecked. A strong Ruble makes Russian exports more expensive for consumers in foreign countries, and makes imports into Russia much cheaper. Russia still has other exports beyond oil and gas that account for a substantial share of GDP. Those export industries would crumble over night. Other Russian industries that produce for the domestic market - and Russia still has a large heavy manufacturing base, plus growing consumer and service sectors - would face ruinous competition from low-priced imports.
What the charts really show is that "demand"* for oil is rising worldwide. Supply has been largely fixed for the last two years, so the world is bidding up the price.
--
* "demand" in quotes to indicate the rising desire of individuals to obtain oil and spend more to purchase it (i.e., a shift of the demand curve), not the actual quantity demanded, which of course cannot rise when quantity supplied is unchanged.