![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
briefly on oil and the dollar
Oct. 20th, 2009 11:02 pmGood evening. I've been in recording studio a lot lately, which is why these have been so sparse on the ground as of late.
Oil broke $80 today in intraday trading today (Tuesday). That was mostly on US dollar weakness which alleviated in the afternoon, with the USD index rising back up to the 75.5ish-range. Monday looked bleak for the dollar, with a break down to 75.1, but Tuesday's rally mid-day prevented a conclusive break downwards.
But that's not important right now. What is important for most of my readers: how much the US pays for oil. People are talking a lot about a dollar devaluation and the necessity of a slow dollar devaluation ("orderly") vs. a fast one ("disorderly.") And all that's fine and good, except for two little punches to the face of that particular sock monkey: 1: As the price of oil climbs, energy costs rise, and US industry bites it. The $10/barrel rise we've seen recently will hit in the next quarter. Sure, US exports get cheaper in real dollars as the dollar declines, but the energy input costs also climb, and "service economy" aside, that still matters. 2: Sure, higher oil costs will force American producers off oil and onto other things. But I don't see how you keep this "orderly decline" both slow enough to convert to non-oil sources without serious economic disruption and fast enough to force that changeover to happen in the face of inertia- and stubbornness-based resistance.
So keep that in mind as you watch oil and the US dollar index.
Incidentally, China's still signing oil contracts everywhere it can. I wonder how much of those are paid up front in US dollars? But in the short run, Mish is still expecting a substantial US dollar bounce. The contrarian in me wants to agree because sentiment is overwhelmingly bearish, and this is where you get either substantial bounces or collapses, and there are a lot of people - by which I mean governments - who don't want that to happen yet.
Oil broke $80 today in intraday trading today (Tuesday). That was mostly on US dollar weakness which alleviated in the afternoon, with the USD index rising back up to the 75.5ish-range. Monday looked bleak for the dollar, with a break down to 75.1, but Tuesday's rally mid-day prevented a conclusive break downwards.
But that's not important right now. What is important for most of my readers: how much the US pays for oil. People are talking a lot about a dollar devaluation and the necessity of a slow dollar devaluation ("orderly") vs. a fast one ("disorderly.") And all that's fine and good, except for two little punches to the face of that particular sock monkey: 1: As the price of oil climbs, energy costs rise, and US industry bites it. The $10/barrel rise we've seen recently will hit in the next quarter. Sure, US exports get cheaper in real dollars as the dollar declines, but the energy input costs also climb, and "service economy" aside, that still matters. 2: Sure, higher oil costs will force American producers off oil and onto other things. But I don't see how you keep this "orderly decline" both slow enough to convert to non-oil sources without serious economic disruption and fast enough to force that changeover to happen in the face of inertia- and stubbornness-based resistance.
So keep that in mind as you watch oil and the US dollar index.
Incidentally, China's still signing oil contracts everywhere it can. I wonder how much of those are paid up front in US dollars? But in the short run, Mish is still expecting a substantial US dollar bounce. The contrarian in me wants to agree because sentiment is overwhelmingly bearish, and this is where you get either substantial bounces or collapses, and there are a lot of people - by which I mean governments - who don't want that to happen yet.
