Oil Vs Dollar Price Correlation

Quote from PragmaticIdeals:

Or maybe it has to do with the obvious....

Oil is traded in US dollars. Thus, as the US dollar weakens dramatically, in order for foreign oil-producing nations and firms to attain the same level of revenue in their home currency, the price of oil must rise in US dollar terms.

Price of oil increase --> Constant foreign revenues due to weakening exchange rate
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This is very interesting....

They are hedging....

Who performs these hedge operations ?

And just how are these hedges constructed ?

Who does it ?

And is this a new process versus several years ago ?


Goldman...etc....

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Thus when it comes to reasoning in govt. policy....who should be brought into question ?

People do make the decisions and move prices....
 
Libertad, you're right, I should have been more specific.

I didn't mean to say that the oil producers must be the ones behind the recent price moves.

It is quite conceivable that traders/speculators, upon the realization that the weakened dollar is here to stay and will likely only spiral downward, understand that oil companies and nations will have to boost the price of oil to make the same amount of profit.

As such, traders and speculators certainly have the motivation to drive up the price of oil in anticipation of such actual market-propelled developements.
 
OPEC has certainly, historically, attempted to manipulate prices by recommending lower outputs (lower supply, higher prices, larger profits).

The rise of oil index funds is my theory of why oil went to $150 at one point.

The Petrodollar reference makes complete sense too.
 
Quote from monty21:

OPEC has certainly, historically, attempted to manipulate prices by recommending lower outputs (lower supply, higher prices, larger profits).

The rise of oil index funds is my theory of why oil went to $150 at one point.

The Petrodollar reference makes complete sense too.
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This is very interesting....

What this suggests is that an abnormally high number of participants became very active....not unlike a large hedge fund piling into a thin stock....

This would point towards a somewhat flawed price setting mechanism whereby a normal demand situation based on actual oil usage....is far surpassed by those who are interested in sole speculation....ie they are never going to utilize the oil....but yet account for the increases in prices....

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But the oil holders must be hedged ....when the dollar moves....oil immediately responds today in either direction....

So the question becomes how are these hedges formed ? And who exactly performs them ?

The next question relates to the legal aspects of non-user speculation in a vital commodity....to many developing countries....ie eating or not eating....or causing Argentina type havoc to their currencies....
 
Quote from libertad:


So the question becomes how are these hedges formed ? And who exactly performs them ?
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This is a question you will never know the answer too. It's a game of Poker and no one will show their cards. The hedges are also performed through various firms. Market is far too liquid to show any footprints anyhow.
 
Quote from libertad:

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This is very interesting....

What this suggests is that an abnormally high number of participants became very active....not unlike a large hedge fund piling into a thin stock....

This would point towards a somewhat flawed price setting mechanism whereby a normal demand situation based on actual oil usage....is far surpassed by those who are interested in sole speculation....ie they are never going to utilize the oil....but yet account for the increases in prices....

....................................................

But the oil holders must be hedged ....when the dollar moves....oil immediately responds today in either direction....

So the question becomes how are these hedges formed ? And who exactly performs them ?

The next question relates to the legal aspects of non-user speculation in a vital commodity....to many developing countries....ie eating or not eating....or causing Argentina type havoc to their currencies....
More...

This "hedging" you refer to is nothing more than an "efficient market" whereby all participants "arbitrage" prices against new information and new expectations.

There are no laws against speculation in vital commodities to my knowledge. Oil speculation is particularly rampant over the past decade.

The market for oil futures can have an impact on the spot market for oil.

If speculation runs amok and traders feel the price of oil will rise in the future, spot prices will naturally rise as well --- otherwise, no one would produce and/or sell oil, you would just sell it forward or hold onto it for future sale.
 
Quote from PragmaticIdeals:

This "hedging" you refer to is nothing more than an "efficient market" whereby all participants "arbitrage" prices against new information and new expectations.

There are no laws against speculation in vital commodities to my knowledge. Oil speculation is particularly rampant over the past decade.

The market for oil futures can have an impact on the spot market for oil.

If speculation runs amok and traders feel the price of oil will rise in the future, spot prices will naturally rise as well --- otherwise, no one would produce and/or sell oil, you would just sell it forward or hold onto it for future sale.
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Which gets to my major point....

One cannot predict future prices....

One can "insure"....

One can "react"....

ie Vulnerable oil dependent countries should include in their budgets the costs of insurance....

And for traders looking to act per extremes....one can react....

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In terms of a country's policies.....it would have to be a uniform international law....whereby the oil owners would have no incentives....Thus this will not happen....and exchanges can be located where there is the most legal ease....

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Which further supports the idea of minimizing "insurance costs" by provisions....
 
Here is DXY/QM pattern chart....

Regards,
Suri

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Quote from suriNotes:

Here is DXY/QM pattern chart....

Regards,
Suri

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Great chart... obvious inverse relationship.

Can you post a longer-term chart too... Like 10 year?
 
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