Peak Oil News and Message Boards

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the recent contraction of the oil price present a serious economic problem
the oil exporters spend their revenues on imports
a cycle of we pay for your oil , you pay for everything you might want
this is working fine until there is a hiccup , a sharp rise in price see the importers spending much more
it even out eventually as the exporters spend more eventually , the process of adjustment take a few years
but a new balance is established .
if the price of oil crash , it might seems like good news but the importers severely restrict their buying
impacting the importers economy

This will further accentuate the drop of the petro dollar. Less people will need American dollars to buy oil, reducing the money put into the market to buy dollars.

Sparky - Good point especially about the time lag. In the oil patch we've understood for decades that the cure for low oil prices is low oil prices. But that cycle typically took 5 to 10 years. As I've pointed out that while low oil prices can significantly reduce new drilling activity operators will continue producing at very low prices thanks to low lifting costs. But it probably won't take nearly as long this time IMHO.

The big difference in this cycle will be the source of our recent production increases: the shales and the Deep Water. Everyone understands the very high decline rates of these fractured reservoirs. Even though operators will keep pumping them within just a few years they are delivering just 10% to 15% of their initial flow rates. Deep Water fields tend to not decline nearly as fast but suffer from another limiting factor: huge capex commitments. A single DW well can cost $100+ million. More important the field development phase can easily run $1+ billion. A price drop can instantly put such projects on hold. And offshore logistics can't be reinstituted very quickly. I've seen operators wait 2+ years just to get a rig into the field. And facility construction time can run 5+ years.

I can't guess how much this latest price slide will impact new oil drilling efforts. But I am sure it will take a while to see it. Companies don't run their time lines like futures traders that can reverse course 180 degrees in 24 hours. Even if lower oil prices yield unacceptable economics companies will carry on as normal...for while. This is especially true of the pubcos playing the shales. Wall Street perception of a pull back can crash a pubco's stock overnight. Remember the value of a companies proven reserves (as required by the SEC) floats with the price of oil. A price induced reduction of asset value typically reduces a pubco's borrowing ability. There was already some weakening of expectations by the Street. It wouldn't be a surprise to see a flurry of cheerleader press releases coming from various sources claiming little concern for the future of those companies. Stock prices can be much more volatile than oil prices. A company is worth what buyers perceive... not what shows up on a spreadsheet.

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That unfortunately is a common phenomenon ,overproducing to beat lower prices
during the great depression ,
farmers in Oklahoma produced even more because the price of wheat was dropping but their bank loans were still at the same levels
they had to have more bushels for less money , thus dragging down the prices further

Then there was the dust bowl, black swans move in flocks

Notice the big move in the value of the dollar, a more valuable dollar buys more oil so the nominal "price" in dollars goes down.

Why is the dollar's value up vs other currencies?
Because people are afraid of another recession, afraid their home currency will suffer so they buy dollars as a hedge.

"Along with the post-crisis financial market normalization, [the drop in oil imports] has dramatically reduced the correlation between oil and the USD, to around 0% (i.e. uncorrelated) today from historical highs near 60% in 2008/2009," Currie writes.

Read more: http://www.businessinsider.com/us-dolla ... z3GKSZ5g6a

Yeah, there is obviously no correlation, because, well, because.

Who you gonna believe, Gold Sacks or your lying eyes?

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The correlation is a simple financial necessity ,
most of the oil traded in the world is done for countries who do not use the Dollar internally ,some reconciliation has to be done

Nice graph pops !

My eyes see no negative correlation since mid 2011 on your chart. So I go to FRED and plot the daily observations indexed to 2009-10-01 representing the start date of your 5 year chart. WTI has risen; likewise the USD.

The chart: http://research.stlouisfed.org/fred2/graph/?g=NUf

I am not a chartist but that 150-160 index number on the WTI seems to be resistance and 110-120 index number seems to be support.