Worthless paper, OPEC's catch 22 and no end of a crude retreat in sight.

[TonyM]

`They get our oil and give us a worthless piece of paper,'' said Iranian President Mahmoud Ahmadinejad at press conference today. ``The dollar has no economic value.''

Entire article here (http://www.bloomberg.com/apps/news?pid=20601087&sid=aKfmA4fMrsbM&refer=home)

[netwrangler]

This looks like a good reason to expect the cost of a bbl of crude to go up in dollars, if not in relation to other commodities.

Let's recognize that:

At $90+/bbl, U.S. demand for energy [gasoline, diesel, heating oil, jet fuel] may ease.
If global warming is actually measurable, it will support reduced energy demand. Reduced heating demand in the winter will not be balanced by increased air-conditioning costs in the summer. More people have heaters than air-conditioners.

These mitigating factors notwithstanding, I have to believe that energy costs are inflationary for the U.S.economy. That does not bode well for the broader stock market in the next year or so.

Of course, that's just my take on it.

[Albert0373]

You have to wonder why the oil market uses USD and is traded on wallstreet when all the oil comes from the middle east. It's only a matter of time until they have their own money and stock market. They have the most valuable item in the world to sell.

It's either that or WW3.... ummm

[TonyM]

At one time the majority of our oil came from the mid east and so it makes sense to me that the majority of payments would be made in USD especially when the financial center of the world is located here. I believe the USD was the strongest currency at the end of WWII. Things do and have changed though, new world order in the making and a new leading currency is waiting to emerge.

[freakscene]

speaking of which.............

Brazil Ponders OPEC Membership on Find

http://biz.yahoo.com/ap/071116/opec_brazil.html?.v=1

Brazil eyes nuclear sub to defend oil

http://news.yahoo.com/s/ap/20071116/ap_on_re_la_am_ca/brazil_nuclear_sub_1

[netwrangler]

speaking of which.............

Brazil eyes nuclear sub to defend oil

Just a side point in the "catch 22" part of this thread:

Back 2001, the US promised Taiwan some 8 subs as foreign aid. But, not nuclear...wouldn't want to give 'em that! Just something that would send a message to China about the "independence" of Taiwan.

Turns out the US no longer had the capacity to make a diesel-electric boat. Moreover, the only folks that had current design drawings for such subs were the Germans and the Dutch. They refused to build the subs for Taiwan [violated their one-China policy] and refused license the plans for US use. This left the US with the following options:
Build the subs using the Dutch plans, but without a license, and let 'em sue us.

Create a new diesel-electric design, build the boats, and ship them out.

This option had the support of Trent Lott, who saw Mississippi shipyards getting the contract.

This option was strongly opposed by the US Navy.
The Navy was worried that if the US could build diesel-electric boats, Congress would mandate that more boats should be built
a) as a cost saving ploy;
b) to save jobs in Mississippi;
c) even, possibly, as valid military strategy
That would ruin the Navy's "all nuclear" concept for the US sub fleet.

Renege on our promise to Taiwan.
Never did hear how it all turned out, but I think we followed option #3 — at least I hope so.

BTW: I'm just reporting what I understand are the facts here, not taking sides. I don't see anyone riding a white horse [white whale?] in this boondoggle.

[TonyM]

The "catch 22" I'm referring to is that OPEC can't very well increase production to drop prices when the dollar is already worth 10% less to begin with. I don't think anyone is capable of fine tuning the cost of crude to the degree necessary to compensate for the declining currency value. It looks like OPEC can only work effectively to increase prices but not vice-versa. Uncle Ben may be the only one (besides the GS traders ;) ) capable of this feat.

The Brazilian deal sounds like a joke to me; 100k bpd? Is that supposed to refuel a Saudi prince's yacht or something? The submarine angle is just as ludicrous, have these jokers been chatting with Chavez? Must have at least been sipping the koolaid.

[netwrangler]

The "catch 22" I'm referring to is that OPEC can't very well increase production to drop prices when the dollar is already worth 10% less to begin with. I don't think anyone is capable of fine tuning the cost of crude to the degree necessary to compensate for the declining currency value. It looks like OPEC can only work effectively to increase prices but not vice-versa. Uncle Ben may be the only one (besides the GS traders ;) ) capable of this feat.

The Brazilian deal sounds like a joke to me; 100k bpd? Is that supposed to refuel a Saudi prince's yacht or something? The submarine angle is just as ludicrous, have these jokers been chatting with Chavez? Must have at least been sipping the koolaid.I'm with you on this one, Tony.

My point was that when submarines are involved, politicians act even more irrationally than usual.

For the money that Brazil would spend on a nuke-sub, they could deploy some really effective, and unmanned, aircraft and patrol boats. But why be practical when you're going for the gold - probably literally, where the politicians are concerned.

BTW: As you may recall, I served on a nuke sub. It was great duty in the Rickover program — a pleasure to be a part of something where top-level performance was expected, indeed required, of all participants.

[madcowdisease]

The US Dollar will be back. This is just a trough in the cycle of interest rate cuts and hikes. Oil is traded in US Dollars because historically it has been the strongest and most reliable currency. Try pricing commodities in the Brazilian Real of the '80s. Yikes! My theory is that the US is the first economy to experience a slowing in growth and Europe will follow soon thereafter. This just means we will be the first to emerge while everyone else is lagging behind. In 5 years the Dollar could be $1.20 to the Euro or even, dare I say, par. The US is still the tchnological king of the world. Take out Google, Microsoft, Cisco, Seagate, and the rest of the silicon valley and what do you have? China can still pump soot in the air and Iran can sell them the little bit of oil remaining but India and Taiwan will be hard pressed to field phone calls without the American economy.