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Thread: TRANSPARENCY - January 2007 - Eric Hodges

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    Default Re: TRANSPARENCY - January 2007 - Eric Hodges

    Quote Originally Posted by Tet
    Those that consider Peak Oil to be anything but a scam, are not going to do very well in the markets. OPEC production cuts have nothing to do with Peak Oil and everything to do with non-OPEC oil entering the market and man created changes to production in OPEC countries.
    Peak Oil is real enough, but widely misunderstood. It is a multi-decade, secular phenomenon - having very little to do with soaring oil prices over the past few years.

    Peak oil is merely the excuse-du-jour for prices soaring due to inflation. What most people miss when they talk about oil prices is that there is not one, but two, commodities involved. When we quote an oil price in dollars, we are not talking merely about the value of the oil, but also the value of the dollars. "Dollars per barrel" is a ratio - a ratio of the value of the oil to the value of the dollar. Therefore, any analysis that purports to divine the course of that ratio must take into account not merely the supply and demand factors for the oil, but of the dollars as well.

    So what has been the main driver of oil prices?

    Hint: It's not the oil.

    In order to examine the question of the value of oil apart from the value of the dollar, we need to factor the dollar out of the equation. One way is to look at the price of oil denominated in gold. The below chart does just this. it shows the price of a barrel of oil, 1970 to date, not in dollars, but in ounces of gold. Over this entire time frame, the price of oil has barely budged. In dollars, it went from $3.35 to $53.40, up by a factor of 16. In gold, it went from 0.965 ounces to 0.840 ounces - a slight decline.

    No, no matter how thorough the analysis of supply and demand trends in oil, if it purports to explain what has happened to oil prices in terms of dollars without addressing the value of the dollars, it falls woefully short. Peak oil just doesn't have much to do with it. The vast, overwhelming, factor in oil prices is the shrinking value of the dollar.

    Last edited by Finster; 01-23-07 at 11:31 AM.
    Finster
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