Oil pricing

Something that has been bothering me for the last few years is what currency is oil really being priced in. Oil trades higher and lower in price depending on whether the dollar is correspondingly lower or higher. I have developed the feeling (not borne out by any analysis) that oil is being traded in dollars but being priced in a combination of euro & something else possibly yen. If this is the case does this mean that the dollar is no longer the pre-emminent currency and has not been since shortly after the introduction of the euro. By this I don’t mean that it has been replaced at the top of the pile by the euro but simply that it is no longer the single cornerstone of world commerce. I don’t believe that the anglo saxon world will ever admit this but has the rest of the world moved on. I have no figures on any other commodities with the same universal trade, is the same pattern happening with those items?

I think you are very right here. The Dollar goes up the price of oil goes down - the price of the dollar goes down the price of oil goes up. I think the Americans are controlling the prices as much as possible. They know about this. Dick Cheeney went into hospital yesterday because he saw his oil falling in price. Bernankie and Poulson are trying to control everything for the moment. It won’t last long more. Something will have to give!! or go!!
Why is the Iraqe Oil not flowing in faster. Will it continue. Where will it go or going at the moment?? Is the price of oil fixed to the Dollar. It is not fixed to gold. It is not fixed to anything only paper at the moment.

Oil is a commodity and there is no reason why it’s price in US$ wouldn’t fluctuate in the opposite direction from the US$ exchange rate. When US$ goes down that means that there is a lot of outflow from US$ denominated financial assets and a lot of that outflow goes into Oil (which is seen as safer). Hence US$ goes down but the oil goes up. No conspiracy there.

This is where my lack of education on this stuff comes in. Does the majority of oil trade freely on the open market or are the majority of deals done on the basis of e.g an oil refining company in France buys a tanker of oil from a Norwegian oil producer with payment in Kroner or Euro and the market price is a guide for futures prices or to cover unexpected or unplanned needs?

Majority of world oil is traded through over-the-counter deals outside of the two main oil exchanges (NYMEX and London ICE). The price of oil in those trades is often in line with the current market prices set in NY and London but also it is very often the case that the price is a reflection of political preferences.

It’s even worse with gas for which there is no free market exchange. All of it is traded through over-the-counter contracts and there is no such thing as the market price of gas as is the case with oil. This is why Chavez’s idea about a GAS OPEC was laughable.

Thanks for your reply and sorry to ask more of the basic questions but would these over-the-counter deals be in dollars or in a currency convienent for both parties i.e. Sterling, Euro, Kroner etc. and therefore could the volume of these trades be affecting the the dollar pricing?

I am guessing that the currency of payment to contractors on oil facilities would reflect the currency that company or country trades in. I have been looking at specific vacancies in foreign oil related companies the past year and have noticed many more non dollar paying jobs than when I worked abroad in the nineties.

You’re correct. It depends on the currency of trading of the buyer and the seller. In the cases of NOCs (national oil companies) sometimes the trades are executed in US$. This is where the government (owner of the NOC) choses to stuff the oil income into the foreign currency reserves and where diversification from US$ currency reserves isn’t yet taking place. I would suspect a lot of oil producing countries are executing in Euro as this is now the second foreign reserve currency of choice. If the seller and the buyer don’t operate in US$ then even where the oil is priced in US$ there is no bearing on the US$ exchange rate. In principle basic market rules of supply/demand apply.

Oil just dropped through to $69 a barrel.

seems to scream of an expected global recession.

I reckoned in march that Iran would get into trouble for opening a non Tbill bourse!
mortgagebrokers.ie/blog/inde … em-bombed/

my feelings from earlier in the year that far from 200 a barrell oil we’d see 65-95 per barrell, the answer was right but to be fair the causes were not the same as what i expected

mortgagebrokers.ie/blog/inde … next-year/

The dollar is in no danger of stopping being the currency of choice, just look at the flight to the dollar in the past few months since it’s become clear Europe is lining up for a big recession too.

short term maybe not.

However even last year one would have said the governments are in no danger of nationalising banks or lehman brothers are in no danger of failing

given the state of things at the moment nothing is impossible.

personally I believe I will see the day when the Dollar is no longer the international reserve currency

The US$ is already no longer the international reserve currency. The choice of foreign reserve currency is the means of hedging against currency risks and will depend on the balance of trade of a particular country. For example if a country’s principal trade partner is Europe it makes less sense to keep the foreign reserves in US$ because what this country needs to do is protect its own currency against wild swings of the Euro exchange rate. Already the US$ makes 60% of global foreign reservers down from 80% in 60’s. This reflects the fall of the share of the US economy in the global economy.

What the hell is supporting oil prices?? Teh US$ is strong so thats not it, we would seem to be in a very long depression/recession, and OPEC cuts seem to be the only hting holding up prices.
I expected oil to be in the mid- 20s at this stage, anyone any insight?

We are coming to the end of a contango in the price curve. It takes a while to return to normal from such a condition but based on the minor carnage in the futures market at the moment as positions are unwound and settled (as against the major carnage a few months ago), the crude futures price curve should have returned to normal by the summer.

So are you saying the price will go up or down from here?

Personally I thought $35 would be the floor for WTI but now Im not so sure. It could go to $25 if demand around the world continues to fall.

I think it’s go higher if you look at what we’re seeing. Contango has narrowed and the downward trend we have had since the summer is gone. On top of that you’ve China stockpiling etc.

Yeah but “temporary” can be a long time. During the last recession in the 90s oil stayed pretty constant for years hovering around $20.

If that pattern is repeated during this recession, oil will hover around $40 for a number of years before breaking out. Dont be fooled by false dawns. I would only be interested in buying below $35.

Latest oil news indicates the oil producers are runninn out of places to store all the excess oil, now that demand has dropped.
Oil tankers are doing a roaring trade as floating storge depots, currently 30 of the largest tankers sit idle in port simply acting as storage vessels.
The 5 largest US inventory tank depots are near capacity, and the exceess would fuel 50 million cars for 1 year… or so the news wire says.

What a ridiculous comment.