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Veteran Advisor

petro dollar, reserve currency, and oil.

Recently I have been noticing some things. Maybe it is age or a different perspective I dunno.  A weakening dollar has been my theory for the runup in corn prices in the past. I still think the dollar has had more to do with the windfall profits that corn acres have generated than any other single factor. but I also think that going forward we will have good pricing opportunities just very little profits at the higher levels.  I also do believe that when Ethanol became "mandated" corn was able to tie itself to oil and therefore became tied into the petro dollar forever.

 

Therefore anything that begins to affect the petro dollar ,our reserve currency or oil bears a long hard look by the corn farmer. Back in august a report by Wood Mackenzie began to bring forward the idea that China not the US would be the leading importer of oil from the middle east.

 

Last month the world witnessed a paradigm shift: China surpassed the United States as the world’s largest consumer of foreign oil, importing 6.3 million barrels per day compared to the United States’ 6.24 million.

 

WOW!

 

That means several things. First off we are finally useing the oil in within our borders helping us to drop our foriegn dependance.  Good for us.

 

second that means That China will have an ever increasing responsibility to "pay the tab" for keeping shipping lanes open and mid east extremists in check. 

 

But third and most importantly the biggest thing is that China may actually find itself to be far worse off if they continue to allow Oil to be settled only in the good ole US dollar. If China and Iran can actually pull off the idea(with Russiashelp) the idea that they can openly trade oil in the Yuan look out in the US. many of the things we are doing are only able to be done because we are the worlds reserve currency.  Now these three entities have already begun to talk about ways to make this work. I think we are very close to seeing this happen. When it does and it will, Corns tie to Oil will become a big drag. 

 

Just one more thing to be thinking about.

 

Over the years we have always said that we needed to protect our way of life by protecting oil fields and shipping lanes.  Maybe Ron Paul was right. What we were actually defending was our world currency status.  To continue the spending spree we have been on since 2000 we need to keep our world currency status.  That may mean the mother of all wars.

 

So pay close attention to the oil market going forward. It may mean more to your corn price than you will wish for.

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12 Replies
Veteran Advisor

Re: petro dollar, reserve currency, and oil.

My question is if U.S. lost number 1 status (oil imports) because we actually import less, or has China just increased their imports that much?   6.24 million barrels a day is still a lot of oil.  China policing the shipping lanes and Middle East region would have3 huge ramifications, none of which would be good for the U.S.

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Senior Contributor

Re: petro dollar, reserve currency, and oil.---oooiiillll

Good topic. I think there is excessive attention paid to the $, oil etc. At the base  corn, wheat  are still dominated by their S.D sheets. The world needs X quant annually, which gradually grows,  wether the is stroing or weak, we need X. World variables are intellectually stimulating, and count but . 

More later on.

 

btw OIL OIL!! gets such press nd takes upo a lot of iour minds, but through time oil use vs gdP asa % is less, less. I think we use, 21 mb'd, at 90, 180 billion in $ per day, but our economy is doing is it 48 B$ an hour.

And in 1980, we used 20 MBD at 20-40$, in an economy of jut under 2Trillion  vs 16.5 trillion today.

 

Matters   but not to the  degree ascribed. 

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Re: petro dollar, reserve currency, and oil.---oooiiillll

The evil Dr. K has some interesting thoughts on the reserve currency discussion this morning.

 

I'm maxed on NYT for the month but you can search for Krugman NYT

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Veteran Advisor

Re: petro dollar, reserve currency, and oil.

HMmmm condescending phd's who tell us "not to worry cause it ain't no big deal" I don't believe them anymore. But I can be wrong.
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Highlighted
Veteran Contributor

Re: petro dollar, reserve currency, and oil.

I agree with JR. Maybe Krugman believes what he writes and I know he has his followers but I can't even read his bs without getting upset. I have to avoid it
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Senior Advisor

You'd better look at these pages of charts

Not pretty. All while we have become the world's largest producer.

 

http://www.usatoday.com/story/news/nation/2013/10/19/us-oil-imports-opec-embargo/2997499/

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Senior Contributor

Re: petro dollar, reserve currency, and oil.

Question is, China imports more oil than we, we are producing more domestically than in decades.  Is that bad or good? We still use MORE by far than any other nation, is that bad or good>  I almost get the impression that  its bad that we import less as a % but being importers in the 1st place is bad, or is everthing bad in your book?Perspectrive, a lame media endlessly makes the US look bad. Yet US percapita outout is ~49k per person China is 4500 up from 200 in 1970,Vietman is 3500. Canada I think ~36k. Is that bad or good?  China has 1.5 billion, we have 330 million. We are the producers of the  world by far.

 

Does Hershey Foods and 1000 more, produce more goods annually and earns more nearly every year, 'is that success or failure.

 

Who is going to become the reserve currency, if it was the euro, or yan, how does that hurt us exactly  :feels bad} economics are not about feelings, but econimically reality. If we consumed 5% less per capita, how bad would that be< still  the biggest consumers? maybe it woukd be good.  Our economy uses 21 MBD of oil in a 17 trillion economy. in 2000 we consumed ~20MBD in a 2 trillion economy . what does that say, oil isn't the all imort  some make it out to be.I think.

 

Other views  open here?

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Re: petro dollar, reserve currency, and oil.

He's certainly been more correct than the hyperinflation alarmists in that particular regard.

 

If you want to go pay $15,000/acre for land based on the opinions of Schiff, Rogers et al. be my guest. In particular be my guest if you actually think that there is a possibility that their austerian leech cure will be applied.

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Re: petro dollar, reserve currency, and oil.

As far as domestic production goes, one thing that is curious is the capital destruction that is going on with the opening up of a lot of new, unconventional production that has a higher marginal cost than the current price. True in some of the frac oil,much truer in gas.

 

Thus you have to conclude that it is all nothing but a respite. Decline rates will continue on old conventional production and exploitation of new plays will slow as prices don't meet the cost.

 

Although it is not unlike breaking a new piece of land because corn is $7. It may turn out to have been not such a great idea but you keep farming it as long as you're covering variable costs plus $1. Or the next guy does. Thus a lot of the previously acquired land will be developed, what you are seeing is a real slowdown in the land acquisition boom with rig counts relatively flat.

 

Frack oil isn't all the story, some of it isdeep offshore, some of it enhanced recovery in existing wells. But as far as frack oil goes, flat rig count means flat production, at best. Those wells peak right at the start and then tail off to nothing in a few years. Once you catch up to the curve you're on a hamster wheel.

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