Re: [PEN-L] Oil & dollars

[soula avramidis]

          What is seignorage is it borrowing at no interest because of paper money issue and therefore it is only the forgone interest payments on the loan amount of issue or is it that fiat money can be held against real assets and therefore it is the bubble (real asset gaps with money) and the foregone interest simultaneously. I think it is the latter. because by jobe in imperfect markets bubbles are standard.

Dollarisation is pursued by the US as part and parcel of global policy to rip off the poor and disarm developing states of an essential policy tool for development.

I want to ask the first person who began this thread to go to the NYMEX and buy oil and use euros.

         The important fact is that the reference prices of oil are in dollars – those of WTI and Brent – on which the pricing of all types of crude in international trade is either directly or indirectly based are determined in futures markets. Or, to be more precise, in a constellation of futures, spot, physical forward and derivative markets where, because of much greater liquidity in the US and its dollars, the US futures markets dominate.

 

Participants in these markets do not consist exclusively of producers and final users of oil. They include major financial institutions (Goldman Sachs, Morgan Stanley, Merrill Lynch, Société Générale, J.P. Morgan etc), a large number of hedge funds and a large number of small, individual punters known in the trade as the ‘locals’. A simplistic view considers all the producers and users of oil as hedgers and all others as speculators. In reality, a hedger is at the same time a speculator because he or she takes, implicitly at least, the view that the actual price is likely to be less favourable than the price he or she is prepared to insure. Can such an intercourse occur outside the liquid US and its dollar and away from the detrimental effect of speculation to developing nations.

 

 

 

Massimo Portolani <[EMAIL PROTECTED]> wrote:

> Fascinating piece on a U.S. navy website on "petroeuros," the Iraq
> war, and seignorage:
> . Conclusion:
> pricing oil in dollars and seignorage are No Big Deal.
>
> Doug
>
>


Very interesting piece indeed. They write most of the things that I
have heard before but they minimize them.

I think the seignorage is not the important issue and also I don't
think it is so important to calculate (only) economic
costs and benefits of controlling the Middle East area, where 50% of
world oil reserves are.

It is a matter of power, very important when China and India are
growing and need more oil.

Oil is needed for everything, from fertilizers to plastics, burning it
in cars or for other energy production
is not so important nowadays. Who controls oil has the power in today's
industrialized society and
the immediate economic cost is not so relevant. I think that a country
like the US has no choice but to keep
oil reserves under control.

If, as an example, China has a big trade surplus with the US, it needs
to be able to use the dollars
it gains to buy something, and oil is something anybody needs. To keep
this going
I think it is important that the US does everything it can to enable
China use her dollar surplus
to oil. Chinese won't be happy to receive dollars and then have to
change them into Euro
to be able to buy oil.

Regarding pricing, it is true that Opec cannot fix prices but they can
anyway influence them heavily
increasing or decreasing production.
It may be a trivial thought but I have the impression that the increase
of the oil price
follows the decrease of dollar value, compared with the Euro.
It means that the arab countries accept dollars but they are not so
stupid not to adapt
oil price to other currencies, like Euro, for example.
They know that there is more devalued dollars around and they want more
of them for the
good (oil) they're selling.

If you compensate for the USD/EURO exchange rate movements from 2001 to
2005, this is
a (may be not too accurate, but not too wrong) picture you get of the
real prices:

year Dollar price USD/EURO Euro price
2001 23 1,05 24,15
2002 22,81 1,11 25,31
2003 27,69 0,95 26,30
2004 37,41 0,79 29,55
2005 42,21 0,75 31,65

So it appears that the Oil price increase in Dollars converted in Euro
is more correlated with the actual turbolence
in the area than the USD price. I have heard various stories about why
the oil price has gone from 23 to 42 (and more) USD, including pending
production peak, or oil wells set to fire, but none seems so convincing
for such a huge increase, so I thought about this increase in USD price
to keep real value.

They keep face value in USD but they think in Euros instead?

They may even be really exchanging the USD in Euros, investing in Euros
and propel its growth
(that is a nightmare for us manufacturing over here!)

Massimo Portolani

P.S. This is an old article where they mentioned the Iraqi request to
be paid in Euros.
'The Economist Nov.23.2000 (print Edition): "..Tight demand on world
markets is encouraging Iraq to throw its weight around. Last month, it
demanded payment in euros rather than dollars, just to annoy America.'

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