iyamwutiam

Where Will Oil Go From Here?

A few points:
1. The dollar has been flooded into international markets and are not going to be withdrawn from the global markes any time soon. This is why the sentiment is bullish for oil. First -the fact that this will ultimately lead to inflationary pressure on the dollar and hence further depreciation.

2. The dollar is the 'reserve' currency of the world mainly because of the oil trade. So - with so many more dollars in the marketplace - the price of oil must rise -not only due to depreciation of the dollar but also the overwhelming need BY the US -to prevent a stream of dollars returninng to the shores of the US causing possible hyperinflation. The easiest way to prevent this is by raising the price of oil -so that the central banks of BRIC countries (all having large US dollar supluses) are forced to keep their dollar reserves instead of dumping them back into the market. This allows the US to maintain low inflation at home and continue to print money.

This 'tie' to the oil trade is what allows the US to print virtually unlimited amounts of dollars as - a substantial portion of this 'excess' money is sequestered in central banks in order to pay for oil.

For example take China -as an example with close to 2 trillion US dollars. IF they required 2005 levels of oil (due to recession )= 6.5M bbl/day at say $60 per barrel then = $390,000,000 * 365 = $142,350,000,000 = 142 billion dollars a year. That leave them more than adequate funds to dump in the market. However do the same calaculations for say $150 dollars a barrel and it becomes $355,875,000,000 billion a year. Which means that if China keeps say a three year biffer for oil -half oof their surplus must be devoted for oil and therefore they can not dump their dollar assets regardless of theplummeting value of the dollar. Multiply this effect across the Gulf states, Japan and germany - America's primary lenders and you can see why the US -can with impunity print money at will- - as long as the price of oil is high.

The US need never repay its debt - per se - as the increasing price of oil forces more and more creditor nations to hold onto a larger and larger portion of their dollar reserves -which precludes them from dumping their excess dollars on the market. With out the high price of the oil - Japan, Germany, China -which hold close to 3.6 trillion of US debt -can and would dump their dollars.

As for the Gulf states - as they are all kleptocratic dictatorships dependent on the US - they can at any point -evaporate a substantial part of the US debt - as the price to stay in power indefintiely -(Saudi, Qatar, UAE).

However- the pressure comes from Iran/Russia and Venezuela- hence this is why all these countries face relentless media pressure as being 'evil'. As they have all moved away from the dollar peg - thereby - causing significant increase in extra dollars returning to the US -hence the rising inflation seen in the US recently.

Ultimately - the US will inflate it's way out of debt. The entire world runs by the same inflationary fiat system and have willingly conspired to inflate their way out debts. It is no coincidence that all the developed countries (Italy/France/England etc) have huge deficits and all the colonial bastions (Brazil/China/India) have surpluses.

Ultimately it was a charade- as these countries are producers being repaid in paper f declining value -while the western countries recieve goods and services.

This system will be maintained - as the developing cpuntries will continue to chase the paper profits (literally) and they have also inflated their own currencies to be competitive. So after the concerted global fight to prevent deflation - there shall be a period of inflation. There is no way out .