Oil-Producing Countries' Currencies Are Getting Crushed

Tyler Durden's picture

While most people's attention has been focused on the demise of the Russian Ruble this year, since the June highs in Crude Oil, the oil-producing nations of the world have seen their currencies devalue rapidly. From Brazil to Nigeria and Algeria, the impact of lower oil revenues is starting to create a vicious circle for many of these nations... and having consequences for the very Petrodollar flows that the US relies upon...

 

 

Mission Accomplished - if the goal was crashing Russia's Ruble - but the consequences of the collapsing Petrodollar flows (as we noted here) may wellcome back to bite...

 

As we concluded previously,

  • The stronger US dollar is having an inverse impact on dollar-denominated commodity prices, including oil. This will affect emerging market (EM) credit quality in various ways.
  • The implications of reduced recycled petrodollars has significant ramifications for financial markets, loan markets and Treasury yields. In fact, EM energy exporters will post their first net drain on global capital (USD8bn) in eighteen years.
  • Oil and gas exporting EMs account for 26% of total EM GDP and 21% of external bonds. For these economies, the impact will be on lost fiscal revenue, lost GDP growth and the contribution to reserves of oil and gas-related export receipts. Together, these will have a significant effect on sustainability and liquidity ratios and as a consequence are negative for dollar debt-servicing risks and credit ratings.

In other words, oil exporters are now pulling liquidity out of financial markets rather than putting money in. That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.

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winchester's picture
winchester (not verified) Nov 15, 2014 12:34 PM

i'll never get why on earth with limited ressources,  the less ressources remains, the more shit is coming so cheaper price become...  there is a serious problem somewhere.

Mr.Sono's picture

Since we hate competition, we need to steal oil somehow.

knukles's picture

HOLD THE BOAT

How can it be said that oil producing countries currencies are being crushed?
What's happening to the US dollar?
We're supposedly one of the world's largest producers of oil.

Hmmmmmm?

kaiserhoff's picture

Chipotle and Herbalife answereth all questions...,   

     but yeah;)

SafelyGraze's picture

the currency of oil producing and exporting countries is weakening

that is because the price of oil is relatively cheap

as the soon-to-be-crowned oil exporter, the us will enjoy the low priced oil further strengthening its already strong petrodollar

it is brown's bottom for us oil

when the assets that back your currency are worthless, your currency becomes very valuable

hugs,
the new order

 

COSMOS's picture

Say goodbye to the dollar, the USA is pissing off a lot of countries

bbq on whitehouse lawn's picture

Its not about emotions its just business, there is not enough demand for dollars outside finance. Real trade would need to take place inorder for other countries to want US dollars in trade for their stuff.
Its not personal, just business and the US is not increaseing demand faster then the government can spend it. Government shrinkage is comeing.

TeamDepends's picture

When we think of the year 2015 we shiver. But that could be because it's colder 'n a witchez teat here.

kaiserhoff's picture

Well, if no one will allow stawks, bonds, or real estate to fall, valuations still have to equalize somehow.

Long nail guns.

Pooper Popper's picture

"there is a serious problem somewhere."

 

Were Fucked!

 

Fixed it for you

PT's picture

winchester:  If people are becoming poorer faster than resources are declining then resource prices can indeed go down as they become rarer.

If Freddy is so poor that he is forced to sell his F250 and buy a bicycle, then his demand for oil will plummet.

This also suggests a solution for oil countries.  If you can somehow encourage people to buy 5.8 litre muscle cars (subsidies?  make a cheap version?  Free V8 with every 1000 barrels purchased?), you can make up for your lower prices through higher volume.  Errr, now my explanations, while they sound good if you say it fast, have devolved into babbling territory.  What % of oil is used for personal transport and what % is used in industry?

bbq on whitehouse lawn's picture

Try the rest of the world. Japan and Europe will buy that cheap petrol so will Asia and Afraca would like some generator power.

Lots of demand if the price is right.

Matt's picture

67% transportation, of which 61% is light duty vehicles, in USA in 2004:

http://www.streets.mn/wp-content/uploads/2013/03/US-transportation-oil-u...

PT's picture

Thank you thank you thank you Matt.
Not every day I get such concise answers to my questions.

Silver Short Seller's picture
Silver Short Seller (not verified) winchester Nov 15, 2014 1:00 PM

That's because the malthusian theory did not consider the advances in technology (e.g. shale oil fracking and horizontal drilling). There's also the price mechanism which signals to entrepreneurs which goods are in demand and supply then expands.

Matt's picture

You think the problem is too much supply?

Not rapidly declining demand, caused by too much debt and no more ability to borrow to consume at ever higher prices?

disabledvet's picture

So I drive faster because energy prices are way down? Why wouldn't I just keep driving slow and "pocket the difference"?

Malthus made no opening for economics itself...not just technology.

In other words a savings/cash flow boom creates its own recovery. Forget mere productivity...if you have an outright production boom that will feed on itself an quite possibly in a positive way (soaring equities for example.)

Matt's picture

Saving will only get you ahead if your in-flows remain the same or higher, and the interest on your debts do not grow faster than you can pay them. I'm referring to society as a whole here, not you specifically. 

Until the debts are cleared and real austerity happens (austerity meaning spending less than you make, again for society as a whole not anyone individually) I don't think this production boom you speak of can occur. 

Even if the economics side works out, I'm not sure the energy side will be able to keep up; if the debt overhang cleared and there was a sudden, sharp decline throughout the economy followed by a fast recovery, I don't think the supply of energy would be able to grow fast enough to meet the demand.

 

Curiously_Crazy's picture

"So I drive faster because energy prices are way down? Why wouldn't I just keep driving slow and "pocket the difference"?

 

Anecdotal evidence only as to how people are feeling the pain, but over the past 6 or 7 years I've noticed how people are driving more slowly on the freeways (regardless of oil prices). It wasn't uncommon in the 90's to see people on the freeway doing 120kph in a 100 zone..  the into the 2000's and it seemed people were actually sitting on the limit. Today however pretty much the left 3 lanes are all doing 80-90 and the farmost right lane is barely cracking 100.

daveO's picture

'Did not consider'? Try still do not consider. I thought he was a narrator on PBS. They're constantly promoting such rubbish, when not touting Carbon Taxes for global warming. People need to remember, coal never run out. It just got replaced by cheaper, better alternatives. Technology=productivity. 

Escrava Isaura's picture

 

 

winchester

“i'll never get why on earth with limited resources…  the more shit is coming so cheaper price”

 

Answer: Because the US (financial) is the boss of the word. And they need to drive business, as well as wage down.

The way they do with business/nation states is: The bankers’ first indebt them. Then, they crash them by price deflation, so they won’t be able to pay their bills.

 

On wage they do by relocating offshore (globalization).

 

Got it?

 

Let me give you an example:

 

Michael Hudson:

As of 1976, Argentina had a total foreign debt of $18 million, 17 percent of GDP. The military came in in ’76 with U.S. government support, established a junta. By 1983, the debt had soared to $48 billion–by a factor of seven.

You had the U.S.-backed military dictatorship that ran the debt up into 1983, but then, in 1989, you had another neoliberal takeover with the Washington Consensus, and they adopted the U.S. dollar as their basic monetary reserves and tied their money supply to the dollar.

That essentially drove the country into debt because it brought on an economic collapse by 2002.

So you have a destructive neoliberal government coming in, driving the country into debt, ’cause that’s what neoliberals do.

 

http://michael-hudson.com/2014/07/vulture-funds-trump-argentinian-sovereignty/ 

 

 

 

kchrisc's picture

Want to understand how the Zionists work and what they ultimately bring about, study Argentina.

An American, not US subject.

 

"It's a Zionist world, time to build a guillotine."

Escrava Isaura's picture

 

 

As well as by studying subprime mortgages in the US, 1997 Asia financial crisis (wonder why they ‘China’ has so much of their savings in dollar), 1998 Russia Financial Crisis, South America (as well as 2008 US Financial Crisis) liquidity crisis, even when South America is a very wealth continent while most of its people still living in total poverty. 

 

Kirk2NCC1701's picture

While building the 'Decapitator', or rolling out the barrel and sharp axe,  they might also want to get OFF the USD Debt-slave camp, and roll out their Gold+Oil based currency.  STAT!!!

If they don't do this REAL FAST, they are dead meat:  Club Fed/Redshield intends to take them out one by one, to prevent the Russians from gaining enough global support for Critical Mass.  Speed is EVERYTHING here.  Move fast or perish!

kchrisc's picture

It begins and ends with money, fiat, "printing," theft.

Well, history tells us that it actually begins with "printing," theft, and ends in slaughter.

An American, not US subject.

 

"History does not repeat, the crimes of governmnet do."

Cloud9.5's picture

The run up in prices has priced consumers out of the market, ie demand destruction which results in a price drop.

CoolClo's picture

Here is the key...

"That could result in higher borrowing costs for governments, companies, and ultimately, consumers as money becomes scarcer.".

 

"as money becomes scarcer"...........-D-E-F-L-A-T-I-O-N....

viator's picture

You mean the long sought inflation is finally here?

Bell's 2 hearted's picture

depends on country

 

US will be importing DEFLATION (for now)

daveO's picture

Until banks start hurting again.

disabledvet's picture

Perhaps in an ironical way, yes.

Sales at GM have been huge and driven by this huge boom in energy production and the "waste" (consumption) associated with it. "Too much money chasing too few goods" literally.

I would argue prices collapsing will not reduce either demand or cap ex as well as the demand for dollars is such that it's far better to give the oil away and "shut in production" (via consumption) than turn of the pipe and turn off all cash flow period.

In short it is my view the "system" (oil production in the US) can run at a loss for a sustained period (decades?) since the production boom is creating other "economies" in the region. (Import/export boom for example.)

Time will tell as the region has known huge busts in the past but one look at all the flaring going on says to me there is little fear of a revenue collapse otherwise these companies would be trying to get every penny they could from actual production rather than give it away for free.

Strange that the environmentalists say nothing about the flaring issues actually.

Bell's 2 hearted's picture

marginal (viable only at high oil prices) projects will get slammed

 

the cash burn will be fierce

 

you're gonna lend them $$s?

disabledvet's picture

I'm not right now but somebody sure is. (State of North Dakota?)

Certainly hitting blow off tops in the Bakken, etc. how is their problem solved by stopping production period tho?

Matt's picture

Let's say you owe $1000 and every day you work, your debt grows $10. If you stop working, your debt is $1000. If you keep working for 100 days, you will owe $2000. If you stop working and wait until the price of oil goes up, you can go to work and make $10 per day. 

Which is better is hard to say, it seems like a really bad situation to be in. No way to know what future price and demand will be, so you cannot be certain that the price will be higher in the near-enough future (before you go bust and lose everything). Is it better to operate at a loss just to service existing debt, while increasing total debt?

Amish Hacker's picture

I'd say we're about to find out. ZIRP is the magical elixer that allows this insanity to continue, since the cost of servicing a $2,000 debt is not significantly higher than servicing $1,000. Just throw the new losses onto the pile. Meanwhile, the company continues to operate, workers get their weekly checks, and most importantly, bonuses continue for the corner offices.

"Stop working" means incurring real costs for shutting down/restarting operations, the probable desertion by a significant portion of your labor force (requiring replacement/retraining), and the end to the wonderfully unfair system that benefitted you so generously.

As long as ZIRP continues, nothing changes, but if interest rates should rise, even a little.... #REF!

 

JustObserving's picture

Unintended consequences of Obama's war on Putin.  All major markets are in the West and subject to control by the US.  Just like all Western Media is controlled by the US

"The Central Intelligence Agency owns everyone of any significance in the major media." -- William Colby, former CIA Director, cited by Dave Mcgowan, Derailing Democracy

Putin Loses His Best Friend: Expensive Oil

http://www.bloomberg.com/news/2014-10-14/putin-loses-his-best-friend-exp...

 

The Telegraph of the UK, one that always faithfully reports US propaganda on every event, is exulting in Putin's problems caused by lower oil prices:

Oil slump leaves Russia even weaker than decaying Soviet Union

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/111812...

PT's picture

What does Russia need to import?  Why does it need to sell oil?  Why can't the oil be used internally?

(Yes, I probably should just look it up myself and I will later, if I remember, but it's way past my bed time so I'll just throw those qs out there for yas before I go nighties.

Kirk2NCC1701's picture

Speaking of "Just Observing" things... I observe that all this "Russian Sanctions" and Commodity Price Dumps help one country in particular:  CHINA!

Funny how the MSM, nor ZH seems to pick up on that obvious and glaring fact.

If I didn't know better (because "Russia and China are BFFs", right?), I'd almost suspect that the West is simply driving Russia into China's arms.  That's one heck of a Takeover -- via the Backdoor, it seems.  Time will tell if this hypothesis has any legs.

JustObserving's picture

China has always benefited from tensions between Russia and the West.  Nixon's rapprochement with China in 1972 was a move against the Soviet Union.  Obama has gambled that attacking Russia and benefiting China ia a deal he can live with.  That may turn out to be a mistake.

lesterbegood's picture

Or perhaps the PTB in China are running the whole show and the US, Russia, et al, are the fronts?

tarabel's picture

 

 

China sells manufactured goods to commoditiy producing countries that do not make their own stuff. Wiping out their economies does not leave a lot of loose change in the cushions to splurge on trinkets.

I keep asking myself the same question every time I see Chinese economic statistics. With every one of their major markets flat or in depression, and their own splurge on ghost cities at an end, where does this magical 7% growth rate come from?

I spend a lot of time buying ordinary retail items and I look at the labels-- always. The evidence of my own lying eyes tells me that they are losing market share everywhere, no matter what spews out of the joint propaganda bureaus of the world.

Again, I'll list the obvious gainers--

Mexico

Vietnam

Taiwan

United States

And again I'll ask the usual rhetorical question--

Who really WANTS to buy Chinese products, as in purchasing from China if there is a matching-price alternative? Or even a really close but slightly higher price?

There was a time when people bought Japanese because it was the best in both price and quality. China is not there and will never be there. 

Their access to Western technology has been shut off due to their kleptocratic ways. Their desperate manufacturing base is shipping goods that fail even their own QC checks because they are in a frantic quest for cash flow to make their payments and stay alive until things hopefully get better.

Selling non-functional stuff wipes out your customer base.

China is in many ways in the same place as the Soviet Union right before its collapse. It looks monolithic, huge, and strong when in fact it is desperately looking for a way out of the box it is in. The only question is whether it will quietly implode or else have a go at the Argentinian last-throw-of-the-dice model.

COSMOS's picture

And here all along I thought you were describing the USA

emersonreturn's picture

russia ought to demand japan and GE begin to clean up fuku.  russia ought to take it to world court.  why russia (and china for that) have remained quiet about fuku makes me wonder if the banks really do control russia.

tarabel's picture

 

 

You really think Russia, with its vast Siberian nuclear septic tanks bubbling away and dozens of submarine reactors dumped on the seabed, really wants to start yapping about nuclear cleanups for the sake of humanity?

emersonreturn's picture

fuku is the biggest mess on the planet.  russia has its problems, yes, including reactors dumped on the seabed.   my deceased brother in law was one of the first into chernobyl, and yes he died of a brain tumour shortly thereafter.  but fuku is hand's down the greatest global hairball, beyond our worst fears, and since the MSM and western govts pretend it is not happening, i don't see how it will affect russia too adversely  to start 'yapping' loudly about it.  asking why it's not being repaired, monitored and detail the impact it's having.  the US is hammering away at russia, i see this a natural way to bring the world to begin to question---how come obola worries about what the BRICS are doing to address global warming while they are in fact putting the entire west coast of america at risk? according to enenews the highest recorded numbers after 2011 were in florida.  because of the currents the effects are global.  yes, i think russia should 'yap' about it.  every other country is scared to say anything.  just ignore, after all it is too terrible to tell the sheeple.  russia may the only nation capable of addressing it.

esum's picture

GLOBAL DEPRESSION COMIN.... and ww3

take a look at the "global leaders"..... see any brainpower there? 

but you do see PSYCHOS.... 

Bell's 2 hearted's picture

Treasury yield will go lower ... much lower

 

as for King Dollar ... it will crush S&P earnings (both on exports and fx treatment of overseas earnings) ... leading to slashed capex ... layoffs

 

fwiw, i've laid down my marker for US recession starting no later than Q1 2015

disabledvet's picture

Still long treasuries but for contrary reasons (I expected the boom...got it and now think it's a classic over shot so see long treasury as the only hedge that can compound profitably.)

Don see a recession because interest rates are still "negative" (below inflation...pegged at zero) and not going higher anytime soon.

An energy boom in the US mid west is inflationary. Should be great for banks and banking actually.