Correction: The weak dollar is not the problem, but it is definitely a problem.
Turkish Weekly explains how the weak dollar affects oil prices. It’s a complicated relationship. What I meant to point out yesterday was this:
Of course, the lower dollar means cheaper oil in Europe, Asia, and all countries with appreciating currencies. Oil prices hit records in the US in 2004 and 2005, but not in Europe, which partly explains why economic growth there has not been affected. When Americans paid $120 per barrel, Europeans paid only about €76 per barrel.
The weak dollar takes our fate out of our own hands, in a way. As the article points out, “if OPEC had excess capacity, it would have already used it to flush out speculators to bring oil prices down. OPEC can regain control in one of two ways: use its ‘claimed’ excess capacity to flush out speculators, or use its financial surpluses to overtake them.”
We can’t depend on OPEC having excess capacity. Nor can we depend on the goodwill of other nations. Venezuela and Iran, for example, are considering pricing their exports in euros.
Experts have suggested that, should Iran demand payment for its exports in euros, central banks could opt to convert some of their dollar reserves to euros and therefore possibly trigger a further decline in the US currency.
If you’re Saudi Arabia or China or Japan, and you’re holding on to vast quantities of less valuable American dollars as a result of the trade imbalance you have with this country, at some point you may want to get rid of it. That would cause a further collapse in its value, so there would be a race to dump the stuff, leaving America in a very bad place.
Listen laddies , first off Europe has been paying $9.00 a gallon for oil for almost 3 years, give or take a buck. Second Europe has to ship in their oil. Third America trades in dollars for oil. Europe is no better off then America for sure. What some what saves Europe is the high € against the dollar and their ability to use mass transportation (everything is somewhat interconnected there)
So yes there are lots of intricate issues to be draw with the current dollar and the oil crisis.
The current oil issue has lots of variables, weak dollar, population growth, oil stock investors being conservative against commodities, ethanol and so on.
In my mind the main issue is “Peak Oil” reading this article a few days ago confirmed it in my mind for sure:
http://www.nytimes.com/2008/05/24/business/worldbusiness/24deal.html?_r=1&oref=slogin
“Rising oil prices and depleting reserves at existing fields forced oil companies to seek access to oil in politically fragile locations that are harder and more expensive to reach” NYT.
Why would they need more deep-water well equipment? Because we have basically exhausted all our reserves. More companies are biding for this class of equipment. If the stockpile were plump or somewhat full, we would have no need for this type of hardware.
Why the world is not address this huge issue is mind-boggling to me.