More Reasons than just Fiat Dollar for Oil Price instability

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The truth behind the rise in oil prices, my response to the video:

Okay. First point in video states that the reason oil is high is because our money is only based on a value by “government decree.” That right there is wrong. Our money is based on the demand for Treasury Notes and T-Bills primarily, which we sell to other countries, we are the only country to do this because we are called the reserve currency of the world.

All currency is valued against the US dollar. Could the decreasing value of our dollar have something to do with the rising price of oil? Yes. But, the rate at which the dollar’s value decreases (leading to inflation of prices of goods) would be fairly consistent amongst all goods, like bread, oil, clothing, furniture, food, etc… So, if inflation was the only culprit, then we would see crazy rises in prices elsewhere.

The main difference between bread and oil has to do with geo political reasons and of course, supply and demand. We have a greatly increased demand for oil from China, India and elsewhere, plus the US. Our supply, while dwindling, is not crazy low.

The oil we get now though is sometimes harder to get, like in North Dakota. They use techniques like fracking now, which cost more money. They also can drill horizontally which also costs more money, plus drilling in deeper ocean areas.

So, you ask me why oil is unstable and it has to do with new technologies being needed to get more oil vs. older cheaper methods of getting oil, tensions in the middle east have the most to do with it, IMO, especially with a potential closing of the strait of hormuz that would drastically increase shipping time.

Then, you also have a lot of people who bet a lot of money that this will happen or it wont happen. So, they are constantly removing or adding money to the Oil and gas futures. This will change the price of a barrel of oil, which then ripples throughout the system. In the past, oil went high because of a hormuz closure or because OPEC was not pumping enough. But, OPEC is pumping enough, at record levels.

Back to the video, one thing I notice is they confuse oil and gas prices. Oil price will influence gas price, but not the other way around. They state that gas prices are low relative to oil, but that also is not exactly true. Look at historical data. During 2003, the price rose above $30, reached $60 by 11 August 2005, and peaked at $147.30 in July 2008 pricing gas at $4.11 per gallon. Currently, WTI Crude stands at $105.96 a barrel and gas prices nationwide average $3.741 per gallon. The price of crude was almost 40% higher in 2008, then today.

While, the price of gasoline was almost 10% higher in 2008. Which of course would explain why they could think the price of gas was relatively low when compared to the price of oil. IE, Gas wasn’t 40% more expensive in 2008 like oil was.

But, they fail to factor in a few things. One of the main things is that oil is not used only for gas. It is used to make many synthetic substances, plastics, rubbers, etc. So, when demand for plastic increases the demand for oil will also increase which will also then in-turn cost gas to increase. The increase in a demand for plastics usually would correlate with an increase in demand for shipping which would in-turn create more demand for gasoline.

Here are some of the main factors that overall have led to an increase in oil prices: 1. India and China are guzzling oil at a rate similar to the US, so demand is up. 2. Supply has not met demand, even though OPEC is producing at record rates. 3. Iran issues. and 4. speculation regarding iran issues.

China’s 2009 consumption of Liquefied Petroleum Gases stood at 19,760 (Unit = 1,000 tonnes), India’s stood at 13,200 in 2009 and the US was at 40, 211. In 2011, India’s consumption rose by 14%, China’s rose by 16.5% and the demand in the US declined by 2.5%.

While my argument is fragmented and full of statistics. One can ascertain that there is much more to oil price instability then just a “Fiat dollar.”

If we were any other country in the world a fiat dollar would play a much more significant factor. But, being the world’s reserve currency changes that.

Ironically, if we did switch to a gold or silver standard, as ron paul and the video suggest, we would see the price of our dollar fluctuate similar to oil. As gold is finite we would need more of it to expand the economy, how do you get more gold? We would trade with countries like South Africa (who would be made a superpower by us going to gold) but they would just have the power similar to saudi arabia, russia, etc… We could of course just go to war to get more gold, which is what most countries did.

What other explanations have you heard regarding the rise in oil prices?

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