Sean Brodrick examines the falling dollar and its relationship with raising oil prices in the U.S. Mr. Brodrick takes a closer look at the dollar as a benchmark currency and how it is creating distortions in oil markets.
Why the oil picture is getting scarier every single day:
- Oil demand is hot and getting hotter.
- Production is sliding.
- Inventories are down.
As the OPEC report says, "With the approaching winter season, the momentum of the product markets may improve further, providing support for refinery economics and crude prices."
OPEC is considering dumping the dollar for a basket of currencies. Every oil transaction around the world, save for a few done by Iran, is currently paid for in greenbacks.
Over the weekend Reuters reported:
OPEC is likely to discuss creating a basket of currencies for oil pricing at its next summit due to the steady decline in the dollar, Venezuela's Energy Minister Rafael Ramirez said on Friday. The dollar as a benchmark currency has been weakening quite a lot and it creates distortions in oil markets.
Remember, OPEC nations have been starting to back away from the dollar.
- Kuwait unhooked its currency peg to the greenback.
- The UAE Central Bank is converting some of its reserves of U.S. assets into euros.
- Saudi Arabia refused to cut interest rates along with the U.S. Federal Reserve.
- Iran is already selling oil in euros and yen.
The lower the dollar goes, the more expensive oil gets in the U.S. And meanwhile, U.S. oil prices have surged 50% since the start of the year, the price rise in euros was 38%.
Conservation is certainly one solution. It led to increased efficiency after the 1979 oil shock, and that's how Americans cut oil use 15% in six years while the economy grew 16%.
Bayou Bend Petroleum is listed in Canada but operates in Louisiana and the Gulf of Mexico. The Gulf of Mexico has 20% of the U.S.'s natural gas and 28% of its oil, and Louisiana and Texas are business-friendly states. As the company's CEO, Clint Coldren, explained, "We want to buy assets with drillable opportunities and upside potential."
"Bayou Bend has plenty of other prospects, too. With one platform in production, the company has put together a nice land package and it is going to drill, drill, drill like crazy. In 2007, the company plans to spend a total of $70 million drilling seven wells. In 2008, that will rise to $108 million drilling 13 wells. The company is also using the latest technology to combine and analyze its data sets to hopefully get more bang for its buck," says Mr. Brodrick.
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About SEAN BRODRICK & MONEY AND MARKETS
Sean Brodrick, the editor of Red-Hot Canadian Small-Caps, has more than 25 years experience as a professional journalist and financial analyst. Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world's leading publisher of offshore asset protection strategies and global investment opportunities.
Mr. Brodrick is also a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada's premiere financial websites, HoweStreet.com. His report, "70 Days to Empty," has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by The Daily Reckoning as "the most important report you're likely to read this year." He has also been featured on several financial talk shows including CNBC Squawk Box and Bloomberg Market Line.
Mr. Brodrick holds a B.A. degree from the University of Maine.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.