The ugly side of cheap oil - Political Forum

Daewoo · 01-18-2007, 01:13 AM

I was watching AJ earlier and they had the oil minister of kuwait on. He was saying that if oil did not get back above $60 "in a reasonable time", that Kuwait was going to be forced to start "encouraging" their oil customers to pay in Euros. He said that "the majority of Opec nations" will take the same path if it becomes necessary.

A little background for those who do not follow such things. Sicne the 1970s until fairly recently all OPEC nations (in fact, nearly all oil producing nations) required that their oil be purchased with dollars. After Gulf I, Saddam started requiring that Iraqi oil be paid for in Euros, and made a handsome profit from the transition. A few years ago, most OPEC nations changed their policy to where they would accept Euros for oil, but it was at the buyers choice. I think that they expected EU nations to start pushing Euros for oil since it would essentially allow them to print inflation free petroeuros. Instead EU nations decided that they would rather continue to pay for their oil in dollars since they could always print inflation free petroeuros later, but if they wanted to push their dollar dominated assets off on somebody else, that was something they have to do today.

Obviously the statment leaves much open for interpetation. How short is "a reasonable time"? How do they plan to "encourage", and when he says "majority", does he mean slightly over 50%, or does he mean all but one??

It is obviously a scary statement regardless.

FRYandBENDER · 01-18-2007, 09:06 AM

Geeze, I don't see why we don't just start drilling for our own oil and leave that part of the world to itself. We have enough oil over here to get us by until we can come up with an alternative. I wish I was in charge sometimes.

george.d · 01-18-2007, 09:58 AM

From what I can gather in my short time here few posters on this board have any interest in economics beyond mainstream media reporting of US government news releases. The US going from a quasi gold standard to the oil standard of petrodollars for monetary expansion based on debt and subsequent foreign policy to maintain that position has yet to influence the majority of geopolitical opinion posts.

I'm still reading opinions that support a declining USD based on US goods and services becoming more attractive and correcting the abnormal trade imbalance without regard to a lack of demand for shoddy goods and way behind the curve services. I'd go so far as to opine that perhaps one out of 50 posters might understand disastrous US economic impact of the Euro (or the proposed Gulf States currency) displacing petrodollars at even a 25% position. Can you say crank up US ME military 'presence'?

george.d · 01-18-2007, 10:23 AM

Quote:

Originally Posted by FRYandBENDER

Geeze, I don't see why we don't just start drilling for our own oil and leave that part of the world to itself. We have enough oil over here to get us by until we can come up with an alternative. I wish I was in charge sometimes.

It's my understanding that without imported oil all of Alaska's untapped reserves would last one year. And that doesn't happen overnight, we're talking years to exploit what's very little oil when compared to Canadian or ME reserves. The US only gets 17% of its imported oil from the ME. Petrodollars that finance US debt are the centerpiece of US ME aggression, not the oil itself.

Slartibartfas · 01-18-2007, 11:56 AM

Quote:

Originally Posted by Daewoo

I was watching AJ earlier and they had the oil minister of kuwait on. He was saying that if oil did not get back above $60 "in a reasonable time", that Kuwait was going to be forced to start "encouraging" their oil customers to pay in Euros. He said that "the majority of Opec nations" will take the same path if it becomes necessary.

... A few years ago, most OPEC nations changed their policy to where they would accept Euros for oil, but it was at the buyers choice. I think that they expected EU nations to start pushing Euros for oil since it would essentially allow them to print inflation free petroeuros. Instead EU nations decided that they would rather continue to pay for their oil in dollars since they could always print inflation free petroeuros later, but if they wanted to push their dollar dominated assets off on somebody else, that was something they have to do today.
.

Thats interesting. Very interesting. I really did not know that the OPEC countries offered the European countries to pay in Euros if they like to.

If the Euro should fall again, lets suppose this for now, to a level comparable low to the one soon after its introduction, it would cause oi bought by dollars to get significantly more expensive due to an unfavorable money exchange ratio. Would the EU switch to Euros then? Is that realistic?

What would be the counter arguments speaking against it. And after the Euro should have recovered again, to be where it is no, could the EU switch back to dollar again, in order to profitate from the exchange ratio? Or would this be far too complicated to be feasible?

Slartibartfas · 01-18-2007, 12:08 PM

Btw, has anyone an idea, why the hell OPEC has its headquarters in Vienna???

Thats right next to the city centre.

FRYandBENDER · 01-18-2007, 03:41 PM

Quote:

Originally Posted by george.d

It's my understanding that without imported oil all of Alaska's untapped reserves would last one year. And that doesn't happen overnight, we're talking years to exploit what's very little oil when compared to Canadian or ME reserves. The US only gets 17% of its imported oil from the ME. Petrodollars that finance US debt are the centerpiece of US ME aggression, not the oil itself.

Yeah, but we can drill off of florida can't we. Shit China is going to, why not us? And then there is the oil shale right?

Quote:

Petrodollars that finance US debt are the centerpiece of US ME aggression

I'll do some research on my own, but could you explain this one a little.... if it won't take too much of your time?

Daewoo · 01-18-2007, 05:32 PM

Quote:

Originally Posted by george.d

From what I can gather in my short time here few posters on this board have any interest in economics beyond mainstream media reporting of US government news releases. The US going from a quasi gold standard to the oil standard of petrodollars for monetary expansion based on debt and subsequent foreign policy to maintain that position has yet to influence the majority of geopolitical opinion posts.

Sadly that seems to be an almost universal situation with Americans. Apparently it has not occured to them that if you could actually get a good idea of what is going on in the economic world and the implications by watching talking heads, everybody would be a billionaire.

Quote:

I'm still reading opinions that support a declining USD based on US goods and services becoming more attractive and correcting the abnormal trade imbalance without regard to a lack of demand for shoddy goods and way behind the curve services.

And lets not forget ballooning prices for imported manufactured materials. That line of thinking is so far out of touch with reality as to be ridiculous.

Quote:

I'd go so far as to opine that perhaps one out of 50 posters might understand disastrous US economic impact of the Euro (or the proposed Gulf States currency) displacing petrodollars at even a 25% position. Can you say crank up US ME military 'presence'?

I can see a whole lot of "liberating" going on in the not too distant future.

Daewoo · 01-18-2007, 05:49 PM

Quote:

Originally Posted by Slartibartfas

Thats interesting. Very interesting. I really did not know that the OPEC countries offered the European countries to pay in Euros if they like to.

If the Euro should fall again, lets suppose this for now, to a level comparable low to the one soon after its introduction, it would cause oi bought by dollars to get significantly more expensive due to an unfavorable money exchange ratio. Would the EU switch to Euros then? Is that realistic?

What would be the counter arguments speaking against it. And after the Euro should have recovered again, to be where it is no, could the EU switch back to dollar again, in order to profitate from the exchange ratio? Or would this be far too complicated to be feasible?

It would be feasible, but the odds of it happening are pretty thin. If you look at historic oil prices along side USD values, it becomes apparent prety quickly that the bulk of oil price increases have been a reaction to dollar devalution. This is why despite the massive price increases we have seen in the last several years, if you factor the price in Euros, you are only paying slightly more than you were 5 years ago. The price in dollars has gone way up, but the Euro has gone up against the dollar.

Ultimatly the Europeans are having to weigh the benifit of paying in Euros vs the benifit of dumping unwanted dollars, regardless of the exchange rate.

It has been interesting to watch the increase of strategic oil reserves the last few years. Traditionally, when oil prices are high strategic reserve growth slows. When they fall back, growth accelerates. The recent bout of high oil prices has not slowed reserve growth at all. In fact, if anything it has accelerated. Nations continued their reserves growth unabated because they judged that an extra 10 or even 20 dollars per barrel was a small price to pay for beign able to dump their dollars and shift more of the dollar devaluation problem to somebody else.

george.d · 01-18-2007, 06:10 PM

Quote:

Originally Posted by FRYandBENDER

Yeah, but we can drill off of florida can't we. Shit China is going to, why not us? And then there is the oil shale right?

Not enough to ever satisfy US (or Chinese) requirements unless the fields are of a magnitude such as those in Canada. Extraction cost is the issue, and when ME oil comes out of the ground at under a buck a barrel due to the sheer size of their pool reserves, good luck getting what it cost you to produce it plus commodity markup. As the forum grows perhaps we'll be fortunate enough to acquire a geologist specializing in fossil fuels.

I follow China but not their actual oil extraction. China has what's known as a global society approach for obtaining their oil, they pay the asking price and tie up available supplies under long-term contracts or in some cases, such as Canadian oil, purchase oil companies. No military threats, just plan old trade.

Quote:

I'll do some research on my own, but could you explain this one a little.... if it won't take too much of your time?

The US is a debtor nation, meaning we consume more than we produce and have to pay other people for excess consumption. We issue (sell) US treasury certificates (debt) to those who need oil so they can purchase their oil. That expands our money supply and consequently our economy, all based on debt. Until recently oil was traded only in dollars, enforced by US military threats, as Saddam found out, Iran faces and Venezuela is playing with. Without constantly issuing that debt, recycling old debt, a bunch of new debt, we'd have to live on what we make, now impossible and our economy would collapse. Russia now accepts some Euros for oil, as do a few other oil producing countries, but the majority is still traded in USD which allows US debt expansion, a tax on the rest of the world. That's the short version, lots of other factors are involved, but we're basically holding most of the world hostage to the USD at gunpoint to support our excess consumption.