Monday, March 12, 2012

Oil Price Increases in Dollars, Swiss Franc and Yen

West Texas Intermediate
Brent Europe
The top chart above shows the percentage changes in the price of oil (WTI) since January 2010, measured in U.S. dollars (30.7% through February), Swiss francs (15.2%) and Japanese yen (12.6%).  Isn't this evidence that at least part of the increase in the dollar price of oil is due to the depreciation of the U.S. currency?  When priced in Swiss francs, oil prices have only increased by half of the dollar price increase, and when priced in yen, oil has gone up less than half the dollar price increase.

In dollars, the price of oil per barrel went from $78.22 in January 2010 to $102.25 in February 2012, for a 30.7% increase.  Based on the 15.2% oil increase measured in Swiss francs, that would be equivalent to a dollar price of only about $90 per barrel, and based on the 12.6% increase measured in yen, it would be equivalent to a dollar price of $88. 

Update: The bottom chart shows the percentage changes for brent crude oil, with basically the same results as for WTI: dollar-priced oil has increased by 56.5% per barrel since January 2010, compared to increases of 38.1% for Swiss-franc-priced oil and 34.9% for yen-priced oil.  

Comments welcome. 

30 Comments:

At 3/12/2012 3:41 PM, Blogger Jeff L said...

The trade weighted dollar index increased by 2% from Jan 2010 to today. You are picking currencies that appreciated versus the dollar.

Also, it looks like you are using WTI, which isn't a proper benchmark for the rest of the world's oil prices (and it isn't even a great benchmark for US prices outside of the midwest).

 
At 3/12/2012 3:46 PM, Blogger Hydra said...

We just went through this on your natural gas post.

Peak Oil claims that European Oil pices have gon up much more than US prices because our prices are based on WTI and Euro prices are based on Brent Composite prices.

I don't know anything about the Japanese oil prices, but I would guess oil prices are still suppressed by the slump in economic demand, until the Tsunami damage is restored.

 
At 3/12/2012 3:47 PM, Blogger Larry G said...

lets see some other currencies including the Chinese currency.

 
At 3/12/2012 3:52 PM, Blogger Jon Murphy said...

lets see some other currencies including the Chinese currency.

Using the Renminbi would be useless as it's pegged to the dollar.

 
At 3/12/2012 4:02 PM, Blogger Johnny Bee Dawg said...

Why start at that date?

Why not start when crude oil bottomed in Feb 2009 in terms of all 3??
Oil bottomed at about $62 and is up about 70% in dollars. But its doubled in terms of Swiss Francs, and is up 125% in Yen terms.
Its even up 20% in terms of gold.
im not seeing this case that a weak dollar is to blame. Maybe weak paper money...maybe.

As a comparison, the Continuous Commodity index recently made a new all time LOW in terms of Gold. That tells me that this is mostly a supply and demand issue for oil. We need more of our abundant fossil fuels to be produced, not hamstrung by this President.

 
At 3/12/2012 4:31 PM, Blogger Larry G said...

" Using the Renminbi would be useless as it's pegged to the dollar."

does that imply that US monetary policies affect what the Chinese pay for oil?

 
At 3/12/2012 4:35 PM, Blogger bix1951 said...

what about a comparison with a basket of commodities?
I suspect that all currencies are depreciating in the fiat money world
some just depreciate faster than others
for me the real mystery is how the CPI remains so low when commodities are going up so much and so rapidly

 
At 3/12/2012 4:51 PM, Blogger Johnny Bee Dawg said...

The Continuous Commodity index is down over 11% in the past year, and recently made an all time low in terms of gold. Looks like deflation to me.

Over the past 12 years since markets peaked and gold bottomed 2000-2011, even the 30 year Treasury Bond outperformed every market and commodity index out there. It made 9.45% per year.

With such deflationary forces, its no surprise to me the CPI is low.

 
At 3/12/2012 5:07 PM, Blogger juandos said...

"it looks like you are using WTI, which isn't a proper benchmark for the rest of the world's oil prices (and it isn't even a great benchmark for US prices outside of the midwest)"...

According to whom?

Forbes one time?

Are you suggesting the use of Brent crude as the better benchmark?

You may well have a good point but I'm just curious why you seem to think using WTI isn't a good idea...

 
At 3/12/2012 5:20 PM, Blogger SBVOR said...

Dr. Perry asks:

"Isn't this evidence that at least part of the increase in the dollar price of oil is due to the deprecation of the U.S. currency?"

Yep, never said otherwise.

But, did you notice that big spike in 2011 among each currency? Know what caused that? Just like the price spikes of 2008, the global demand for oil exceeded the global supply of oil. That set off a bidding war wherein somebody did NOT get the oil they needed and everybody else paid more than they wanted to -- the natural laws of supply and demand in action.

http://sbvor.blogspot.com/2012/03/world-oil-balance-vs-price-of-oil.html

As for what caused the (temporary) price dip in February...

"rising stocks at the Cushing storage depot pressured WTI prices lower
in early February"


http://omrpublic.iea.org/omrarchive/10feb12full.pdf

If global demand continues to remain higher than global supply, expect prices to rise again.

 
At 3/12/2012 5:31 PM, Blogger rjs said...

yeah, what Jeff L said...

WTI is only used by central US inland refineries...& where's the euro on your chart?

 
At 3/12/2012 5:52 PM, Blogger SBVOR said...

RJS asks:

"where's the euro on your chart"

In the chart linked to below, we see that the value of the dollar against the Euro was rising at exactly the same time that the cost of both Brent and WTI were rising.

In fact, all three peaked at about the same time:

http://research.stlouisfed.org/fred2/graph/?g=5EC

 
At 3/12/2012 5:55 PM, Blogger Rufus II said...

Here's a sign of the times:

They're shutting down the Brent Oil Field. It's just not producing enough to remain profitable.

Brent Crude won't have any Brent.

Speaking of Brent Crude, it's the benchmark for something like 70% of all International oil transactions.

Brent Crude reached an all-time high against the Euro the other day.

 
At 3/12/2012 6:01 PM, Blogger Rufus II said...

There aren't enough pipelines in place to get all the oil at Cushing that wants to get to the Sea, to the Sea. Hence, the low price. This will be mitigated to some extent in June when the Seaway Pipeline completes its reversal, and starts flowing oil Out.

Louisian Light Sweet is basically the same grade (light, sweet) as WTI, but it loads at St James, La (on the Gulf.)

The Spot Price of Louisian Light Sweet, today, was $126.50

 
At 3/12/2012 6:09 PM, Blogger Rufus II said...

Brent Crude, Louisiana Light Sweet, Alaskan Crude, Nigerian Bonny Light, Arab Light, and several others all usually sell for within a dollar or so of each other.

The really expensive oil is when you get close to China. Minas Crude (Indonesia) Is Selling for $138.07

Tapis (Malaysia) is probably about the same.

 
At 3/12/2012 6:13 PM, Blogger Rufus II said...

Last sale of Tapis was $135.06

 
At 3/12/2012 6:15 PM, Blogger Jon Murphy said...

does that imply that US monetary policies affect what the Chinese pay for oil?

Sort of. As the dollar gains and loses value, Beijing manipulates their currency to keep the value in a range that they deem acceptable.

 
At 3/12/2012 6:15 PM, Blogger Rufus II said...

Indonesia is a former oil exporter, turned importer. They might be having a hard time coming up with something to sell.

 
At 3/12/2012 6:37 PM, Blogger Craig Howard said...

You are picking currencies that appreciated versus the dollar.

Well, yeah. That was his entire point, wasn't it.

 
At 3/12/2012 8:04 PM, Blogger SBVOR said...

The “depreciation of the U.S. currency” should be reflected in a wide range of commodity prices (such as the CPI).

The following link shows about a 4% increase in “All Items Less Energy” over the period examined by Dr. Perry. It also shows about a 30% increase in WTI and about a 60% increase in Brent:

http://research.stlouisfed.org/fred2/graph/?g=5EJ

Wouldn’t it then be reasonable to say that 4% of the increase in the price of oil is due to the “depreciation of the U.S. currency” and the remainder is driven by something else (like global demand exceeding global supply for each of the last 8 quarters):

http://sbvor.blogspot.com/2012/03/world-oil-balance-vs-price-of-oil.html

 
At 3/13/2012 2:23 AM, Blogger Ron H. said...

Larry: "does that imply that US monetary policies affect what the Chinese pay for oil?"

Jon M: "Sort of. As the dollar gains and loses value, Beijing manipulates their currency to keep the value in a range that they deem acceptable."

Sort of means it's really Chinese monetary policy that affects what the Chinese pay for oil.

 
At 3/13/2012 5:36 AM, Blogger Richard said...

How about euro's?

 
At 3/13/2012 5:53 AM, Blogger Larry G said...

Let's say - for the sake of argument that everyone pays for oil in gold.

at that point - would individual countries monetary policies - still affect other countries cost of oil?

bonus question - how is Greece affected? do their policies have a bigger or smaller influence than US policies since oil is usually pegged at dollars?

 
At 3/13/2012 8:01 AM, Blogger Johnny Bee Dawg said...

Forcing one artifically scarce commodity (oil) to be bought only with another even more (actually) scare commodity in such a hypothetical would mean that only "rich" people would have gold & by extension oil. With gold as "money," The Mother of All Depressions would ensue as money supply would contract fastest, and gold would shoot highest in Man's history.

There's only enough gold ever mined in Man's history to fill a couple of Olympic-size swimming pools. A bonus effect to the loss of prosperity and starvation around the world, would be really big wars fighting over those 2 swimming pools! At least the elites could finally wipe out all those pesky "feeders."

By the way...since Crude Oil has gone up so much higher SINCE THE BOTTOM of each rise in terms of Swiss Francs & Yen & Euros than it has in US Dollar terms, there is little evidence to suggest that a weak dollar is the reason for its rise.

 
At 3/13/2012 12:35 PM, Blogger morganovich said...

this is only a partial explanation.

the dollar is up against many currencies in the last 12 months.

this chart makes it hard to see, but the moves in the last year are are pretty equivalent as the rest of the world started QE to stop trade issues caused by our devaluation. many, like the swiss, did it deliberately.

in the last 12 months, the dollar is up almost 7% vs the euro. the dxy/uup are up very slightly (maybe 2%)

the swiss franc is pretty much exactly where it was a year ago.

thus, over the last year, the EU is seeing a bigger hike in oil prices than we are, as are our trade weighted partners.

oil prices have certainly been driven in part by a weak dollar over the last deacde, but clearly, something else is going on as well.

the dollar lost 50% of it's value against the swiss franc (CHF) from 2000. the CHF is a good benchmark (or was until last year).

but oil prices are up 5X.

the currency only accounts for a doubling.

clearly, something else is at work too.

 
At 3/13/2012 1:34 PM, Blogger Ron H. said...

"Let's say - for the sake of argument that everyone pays for oil in gold.

at that point - would individual countries monetary policies - still affect other countries cost of oil?
"

If everyone used only gold for money, there would be no monetary policies as we know them.

Individual countries monetary policies have no effect on what other countries pay for anything in terms of those other country's own currency, except indirectly, as is the case with China, whose currency is pegged to the USD.

 
At 3/13/2012 1:45 PM, Blogger Ron H. said...

Johnny Bee Dawg: "Forcing one artifically scarce commodity (oil) to be bought only with another even more (actually) scare commodity in such a hypothetical would mean that only "rich" people would have gold & by extension oil."

Why would that be? Poor people have money now, wouldn't they still have money if it were gold instead of paper?

"With gold as "money," The Mother of All Depressions would ensue as money supply would contract fastest, and gold would shoot highest in Man's history."

How do you figure that? If gold was money, why would the supply of it contract?

 
At 3/13/2012 2:02 PM, Blogger morganovich said...

ron-

except the giant town at the top of the beanstalk.

if you have a golden egg laying goose, you can depreciate a gold standard currency and affect everyone.

something quite like that happened after the discovery of the new world. the Spanish brought home so much gold and silver that it swamped the european economy and caused significant inflation.

it was, in a sense, much needed as trade imbalances with the middle east and Persia had caused serious silver shortages during the dark ages, but in % terms, that made the inflation even greater. many who had been hoarding silver really got hurt as did lenders.

 
At 3/14/2012 1:13 AM, Blogger Ron H. said...

morganovich: "something quite like that happened after the discovery of the new world. the Spanish brought home so much gold and silver that it swamped the european economy and caused significant inflation."

Yes, and from that valuable lesson we've learned...nothing.

 
At 3/14/2012 1:21 AM, Blogger Ron H. said...

morganovich: "except the giant town at the top of the beanstalk.

if you have a golden egg laying goose, you can depreciate a gold standard currency and affect everyone.
"

You've been reading ahead! That's in chapter 9. I haven't covered that with the class yet. :)

 

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