Dollar/Krone Relationship A Sign Of Peak Oil?

I was quite amazed at the amount of negative response received from European posters on the ECB post. I still believe the ECB is making a mistake. Granted, the ECB is dealing with a host of issues the FED does not have, such as, semi-rigid labor markets. I still believe the ECB’s target and potential slavish adherence with keeping to an inflation target will cause a lot of unnecessary pain to the Euro zone.

Yes, I am in the “this inflation is transitory” camp. However, the last few days have seen an orchestrated move in several central bank policies. Most notably, the ECB is telegraphing the potential to raise its rates. The Bank of Canada did not cut rates. India has raised rates. China is making moves to drain liquidity from its system. The US has aggressively moved to jawbone the dollar.

I have a tendency to watch the US Dollar/Norwegian Krone relationship, since it is the one that is currently causing the most current and dramatic pain to my pocket book. (I happen to spend my summers in Norway.) What has been interesting to note is the ability for the US dollar to continue to pick itself off the 1 Dollar/5 NOK floor. This is occurring even as oil races back up to new highs. I am thinking (praying) that the dollar may have found its floor. Could this be a soft signal that oil is now starting to reach the peak of its bubble?

Comments

[George Kesa...:]

Yes it is, I have noticed also EURUSD react the same way.

I am betting that a $20 fall in oil in oe day the next 20 days or so

2008 Jun 12 08:33 AM

[ziz:]

"Could this be a soft signal that oil is now starting to reach the peak of its bubble? " You ask.

No.

2008 Jun 12 09:13 AM

[Melancholy ...:]

You're right about the ECB. They are playing a stupid power game. Let the differential tighten, let oil retrace, solve the inflation problem. Doesn't matter, though, 'cause the Fed will defend the dollar here. Dollar's bottomed. Oil is a bubble, so it will burst, but of course timing the thing well, i.e., avoiding getting gored by a vicious short-covering move, is what separates the traders from the commentators.

2008 Jun 12 09:18 AM

[svkoho:]

Short answer is NO. Norway is a real country with a solid economy. The US is a basket case and people have yet to wake up to the fact that it is in a flat spin and Oil will be volatile but to call for a top is rather pointless. Oil will continue to go up until demand drops. No sign that $130 will do much. Maybe at $230 or $330.

2008 Jun 12 10:09 AM

[Poul Andreasen:]

cal48koho:"Oil will continue to go up until demand drops. No sign that $130 will do much. Maybe at $230 or $330."

My view exactly. As production is evidently not going to increase much, demand destruction needs to fix the price. Bubble thinking is wishful and contrary to facts on the ground. Production is down almost everywhere (look mazamascience.com/OilE.../ for data).

My own theoretical limit to future gasoline prices is 12.000 USD a gallon, as a gallon does the equivalent of approx. 700 hours of manual labor. Danish wages btw. You might get a slave cheaper elsewhere. But you need to work him locally. So 4 USD for 4 months labor is damned cheap alsmost everywhere in the "developed" world.

2008 Jun 12 02:42 PM

[johnhaskell:]

maybe NOK's failure to appreciate against the USD indicates that Norway's oil production has peaked...which is obvious once you start looking at Norway oil production data.

2008 Jun 12 02:52 PM

[svkoho:]

Johnhaskell: Norways oil production did indeed peak 5 or 6 years ago but by keeping domestic use curtailed by high taxes, most does go to export. But Norway has a huge coastline and a wide continental shelf and with some new fields coming on line in the next 5 years, it is more likely than most countries to have that CERA "undulating plateau" for a while. I hope so. I have owned a lot of statoil for a long time and I hope it will feed me in my dotage.

2008 Jun 12 04:33 PM

[dadlivonia:]

Langer needs to understand what "Peak Oil" means. It has nothing to do with price of oil, except in a derivative sense.

2008 Jun 12 05:29 PM

[MNSL:]

Excellent Article.

I think we are close to cyclical collapse in the commodity market including oil market in next 12 months.

I think this is the time to make profit in the commodity market. Sharp increase in prices for some commodity recently is a signal for imminent collapse in the commodity market.

r your comment here

2008 Jun 13 04:57 AM

[bearfund:]

I love STO but Norway is more than just oil (and STO is more than just Norway). It's a real economy with fiscally responsible government and citizens (the central bank has set interest rates at positive real levels and, remarkably enough, Norwegians respond by saving! The US could learn a lot...). So even if oil falls back to $100 I expect to see the NOK remain strong relative to USD.

The bottom line is that the world is awash in cheap money and prices are rising rapidly. There has been a lot of jawboning about currencies and interest rates but unless it is backed up by concrete improvement in the US economy or a Fed rate hike or both the dollar is going back in the tank. No one will invest (or buy equities) as long as inflation pushes required returns into the 25% range and beyond, and until investment comes back the US economy will continue to swoon. In the meantime everyone will put that cheap money to use in the only sensible way, by buying oil... The Fed has to raise rates - a lot more than 25bp, too - to shut down this vicious cycle, but it won't because we've got to help the banks, don'tcha know.

Enjoy your summer, and consider leaving a part of your savings behind in kroner; in time you'll come to see your time in the US as cheap instead of seeing your time in Norway as expensive.

2008 Jun 14 09:53 PM