You are here
Garry White: Obama's weak dollar, not 'speculators,' to blame for oil spike
By Garry White
The Telegraph, London
Saturday, April 30, 2011
http://www.telegraph.co.uk/finance/oilprices/8482960/Obamas-lax-dollar-i...
If President Obama is to be believed, "speculators" are responsible for the rise in oil prices that threatens the global recovery. However, for the real drivers of the oil price, the President needs to look closer to home.
The US has continued to devalue its currency by allowing the Federal Reserve to print dollars like they are going out of fashion. This has boosted the price of all commodities -- and the trend is likely to continue for the rest of this year.
Commodities such as oil are priced in dollars. When the dollar falls, these commodities -- be they copper, wheat, or oil -- become cheaper in other currencies. This prompts "speculators" to buy. Prices of raw materials have therefore risen on a sea of dollar liquidity -- fuelled by cheap money and quantitative easing.
This is the reason that the gold price keeps hitting all-time highs, as US policy causes faith in "fiat money" to crumble. No country in the world has its currency backed by gold -- and the plan to spend America out of the downturn is making a mockery of the country's "strong dollar" policy.
... Dispatch continues below ...
Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon
Company Press Release, January 18, 2011
VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.
PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.
Following the transaction:
-- Prophecy will own approximately 90 percent of PCNC.
-- PCNC will consolidate its share capital on a 10 old for one new basis.
-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.
-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.
Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.
For the complete announcement, please visit:
http://prophecyresource.com/news_2011_jan18.php
The President must also remember that it's not only "evil" bankers who are involved in the oil derivatives markets -- airlines and other large consumers have to hedge their businesses against fluctuations in prices. Oil companies also use derivatives to hedge positions. The proportion of speculators in the market is really quite small -- it's just that they are an easy target for politicians wishing to deflect opinion away from their own shortcomings.
"Speculation makes up only a small portion of the market," according to Andrew Moorfield, Global Head of Oil & Gas at Lloyds Banking Group Corporate Markets.
"The idea that this minority can influence prices to the extent that is sometimes believed seems unreasonable. It is also a position that enjoys very limited empirical support. The real influencers of the current oil price are not hedge fund managers, who arguably add valuable liquidity to these markets, but rather the fundamental drivers of supply, demand, and global instability."
It is not a coincidence that the dollar index, which tracks the US currency against those of six major trading partners, has fallen as the oil price has risen over the past year -- there is a remarkable correlation.
Last week the index fell to its lowest level since 2008 after Ben Bernanke made it clear that US rates will not rise for some time. This fact will continue to support commodity prices as the dollar becomes even more unfashionable.
Of course, there are fundamental drivers too. The oil price eased at the end of last week as it become clear that the US economy -- the most oil-thirsty in the world -- will be struggling for some time yet. This will limit demand and it should keep a lid on prices, if a dollar fall is ordered.
On the other hand, US stockpiles of gasoline dropped for a 10th week in the week to April 22 -- the longest losing streak in four years, according to data from the Department of Energy.
Still, speculators will get the blame for rising prices -- as it is politically expedient. This was the case when oil prices jumped as a result of the turmoil in Libya.
However, the type of oil that Libya produces is an important consideration here. Oil from the North African country is "quality" oil. It is a low-sulphur product known as light sweet crude.
This type of oil is an essential feedstock for European refineries to produce ultra low-sulphur diesel oil, which is used by European trucks and cars.
So supply remains very important -- especially for the US. Yet moves by the Obama administration following the Gulf of Mexico oil spill a year ago will crimp supply for years to come. His moratorium on US drilling, coupled with thousand of pages of new regulations for drilling companies, will make the supply side tighter.
In the past two weeks the US President has asked the Department of Justice to investigate whether Wall Street speculators are manipulating the oil market. Maybe he thinks that it is.
However, next time you fill up your tank and the price has increased, don't blame investment banking speculators for the rising prices -- they are a tiny part of the problem. The blame lies with loose monetary policy in the US, plus high taxation by the UK Government, of course.
* * *
Join GATA here:
World Resource Investment Conference
Sunday-Monday, June 5-6, 2011
Vancouver Convention Centre East
Vancouver, British Columbia, Canada
http://cambridgehouse.com/conference-details/world-resource-investment-c...
Gold Rush 2011
GATA's London Conference
Thursday-Saturday, August 4-6, 2011
Savoy Hotel, London, England
http://www.gata.org/goldrush2011-london
Support GATA by purchasing gold and silver commemorative coins:
https://www.amsterdamgold.eu/gata/index.asp?BiD=12
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Wall Street Journal Publishes Lewis Lehrman's Call for the Gold Standard
In its April 26 edition The Wall Street Journal published an important essay by the Lehrman Institute's chairman, Lewis E. Lehrman, explaining why a gold-convertible dollar is critical to eliminating the shocking federal deficit.
"Experience and the operations of the Federal Reserve System compel me to predict that U.S. Rep. Paul Ryan's heroic efforts to balance the budget by 2015 without raising taxes will not end in success -- even with a Republican majority in both Houses and a Republican president in 2012. ...
"What persistent debtor could resist permanent credit financing? For a government, an individual, or an enterprise, 'a deficit without tears' leads to the corrupt euphoria of limitless spending. For example, with new credit the Fed will have bought $600 billion of U.S. Treasuries between November 2010 and June 2011, a rate of purchase that approximates the annualized budget deficit. Commodity, equity, and emerging-market inflation are only a few of the volatile consequences of this Fed credit policy."
To read more, and to sign up for The Gold Standard Now's free, noncommercial, weekly report, "Prosperity through Gold," please visit:
http://www.thegoldstandardnow.org/gata
